FOR IMMEDIATE RELEASE: CONTACT: CHRISTI HARLAN
Thursday, September 28, 2000 202-224-0894

GRAMM SEEKS PROOF OF PROBLEM
WITH AUDITOR INDEPENDENCE

Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, made the following statement today at a Securities Subcommittee hearing on a rule, proposed by the Securities and Exchange Commission, that would affect the consulting affiliates of auditing firms:

"There is an inherent conflict when I hire an auditor because I am paying for those services. That is the inherent conflict, and no one has proposed changing that. We are not going to collectivize accounting services.

"But it seems to me that when you are going to change dramatically the way we do business in America, when you are basically going to break up major American companies with long, distinguished records, there is a heavy, heavy burden of proof on those who would mandate those changes. What we have to see is proof of the benefit.

"If we were starting the world over; if we were back at the founding of the country, if the accounting profession was in its infancy, this might have been a reasonable proposal that might have had a relatively low burden of credibility. Just the logic alone might have been enough to persuade that as we set out the standards for growth of the industry, this might have been the way to go. But we're not in that position.

"Our accounting firms are the envy of the world. Some of the most respected companies in America are the very companies that might be dismembered by this proposal. If we're going to see this happen, there has to be hard evidence that there's a problem and that this dismemberment is going to solve the problem.

"That basically is the question. It is the standard I have set out that has to be met if these changes are going to be made and sustained. They are the things that I worry about.

"That's not to say that a logical case can't be made. You can make the argument that any time you are paying an auditor there is a conflict of interest. But if you are going to make the kind of changes that we are talking about, you have to do more than argue that there might be a conflict and that conflict might override the credibility of the people who are leading these firms. You have to have hard evidence, and that's what we're looking for."

In response, SEC Chairman Arthur Levitt agreed to provide a confidential briefing for members of the Senate Banking Committee about auditing cases under investigation by the SEC's enforcement division.

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