SEC Chairman Lilia R. Bautista said full disclosure and transparency will be possible only if the corporate sector uses high quality and globally-adopted financial reporting structures based on international accounting standards.
According to Bautista, the SEC is considering a number of measures including a directive that will require a separate audit review and opinion for transactions amounting to an aggregate of 10 to 15 percent of total capital involving conflict of interest.
Bautista said there is also a proposal to require quality assurance or peer review by independent groups or government auditors to verify the audit reports being submitted by corporations.
Furthermore, Bautista said the SEC will require companies to disclosure the appointment and qualification requirements for chief financial officers and other signatories to the interim reports being submitted by listed corporations.
Until late 2001, Enron was one of the biggest companies in the US. Following a scandal that triggered the collapse of its share prices in Wall Street, the company filed for bankruptcy.
Subsequent investigations revealed that Enron executives had connived to conceal its debts and keep them out of the books, implicating accounting giant Andersen Consulting in the scandal.
According to Bautista, such an incident can not be completely prevented especially if there is a collusion between the external accountant and the corporate executives, but regulations can make it difficult for such connivance to succeed.
Bautista said one of the positive effects of the Enron incident is the sudden increase in vigilance among investors.
According to Bautista, adherence to international accounting standards has been prompted by market demands. Investors want credible, transparent financial reports, she said. "Cross border investments also demand high quality and investment decisions use public information available through regulatory agencies," Bautista added.
Bautista said its goal is to push the industry towards the gradual adoption of international accounting and auditing standards and aligning disclosure requirements with international standards by 2005.
Bautista said the SEC has already amended the Special Accounting Rules which govern financial disclosures. She said phased amendments will be made annually until these standards are fully adopted.