US senators call for tighter controls
18 August 2010 Washington DC
Image: Shutterstock
An influential group of US senators has called for the Securities and Exchange Commission to tighten corporate accounting disclosure rules in an attempt to reduce the risk of another Lehman Bros-style collapse.
In particular, the senators want to avoid the Repo 105 situation, and ensure institutions are required to provide full disclosure of off-balance sheet activity. While Lehman is the highest-profile casualty, it has since been revealed that the practice was common amongst other firms.
The senators - Mary Schapiro, Robert Menendez, Edward Kaufman, Carl Levin, Diane Feinstein, Barbara Boxer and Sherrod Brown - said in a letter to the SEC that there must be no opportunity for a firm to hide its debts.
"Rather than relying on carefully-staged quarterly and annual snapshots, investors and creditors should have access to a complete real-life picture of a company's financial situation," said the letter.
"The SEC was founded on the premise that when investors and creditors have full and accurate information about companies' finances, they can allocate capital effectively. But when companies use accounting gimmicks to mislead investors and creditors, capital markets malfunction.
"As we attempt to recover from the latest meltdown, we hope that, in addition to aggressively investigating and prosecuting past misconduct, you will put in place these new rules that will make it harder for companies to mislead investors and creditors in the future."
In particular, the senators want to avoid the Repo 105 situation, and ensure institutions are required to provide full disclosure of off-balance sheet activity. While Lehman is the highest-profile casualty, it has since been revealed that the practice was common amongst other firms.
The senators - Mary Schapiro, Robert Menendez, Edward Kaufman, Carl Levin, Diane Feinstein, Barbara Boxer and Sherrod Brown - said in a letter to the SEC that there must be no opportunity for a firm to hide its debts.
"Rather than relying on carefully-staged quarterly and annual snapshots, investors and creditors should have access to a complete real-life picture of a company's financial situation," said the letter.
"The SEC was founded on the premise that when investors and creditors have full and accurate information about companies' finances, they can allocate capital effectively. But when companies use accounting gimmicks to mislead investors and creditors, capital markets malfunction.
"As we attempt to recover from the latest meltdown, we hope that, in addition to aggressively investigating and prosecuting past misconduct, you will put in place these new rules that will make it harder for companies to mislead investors and creditors in the future."
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