Over-regulation and Overreaction

The course of events over the last year has been nothing less than a tragedy for the financial world. Thousands of people-both young and old-have lost their savings in the stock market, lost retirement plans, even lost their trust in the financial world itself.

It seems like a revisit of the scenario in the 1920s and 1930s, when funny numbers in the 1920s brought a crash and depression a decade later. I think we can avoid repeating the mistakes of the past by using common sense and reason instead of rash reactions, which seem to be in vogue today. Emotion, shock, anger and revenge are just a few of the feelings that have been running through our heads in the past months.

But too many people are jumping at the chance to do something short-term and "politically correct." They're bashing accountants and companies for their reporting, then creating rigorous standards that can never be met, all in the name of politics and getting reelected.

We must also keep in mind, as we think through our actions, the fact that we operate in a global economy. The actions we take to overprotect our industries could actually hurt American businesses' ability to compete in the global marketplace. This is not to say we don't need punish those who do wrong, but we must carefully think about our actions before taking them.

Many accountants and lobbyists are afraid to speak out on such things today. But for the general good, it's important that we do consider a number of ideas:

- We don't want to build bodies of boards of people who won't understand what they're looking at. Those who would ultimately be doing the regulating would operate as part of the Federal Government-arguably the worst offender when it comes to inaccurate financial statements. Look at the swings in budgets and deficits we've seen, the most recent being more than $150 billion.

- The SEC has enforcing power; or if it doesn't, it should. That's why it was created in the first place and it could potentially operate as a powerful regulating board.

- The idea of CEOs and CFOs attesting to the accuracy of financial statements and being personally liable for a company's financial statements is a good idea in theory, but in practice may not prove practical. What if a rogue employee commits fraud or collusion unbeknownst to the rest of the company and the auditors? Should an executive have their personal life destroyed as a result? What about the concepts of corporations' "limited liability"? Even though the Sarbanes-Oxley Act states that the CEOs and CFOs are certifying to "the best of their knowledge," I have to wonder if this is just an invitation to sue them personally. If this regulation is enforced as is, we could experience a serious shortage of qualified CEOs and CFOs at publicly traded companies. Something to consider.

You can buy three insurance policies for the same thing and pay triple the price, or you can just buy one good policy and still have the same measure of protection at a fraction of the cost. As we try to choose a "policy" for the accounting industry, we have to be reasonable in our reactions and our resolutions, and tread carefully on ground that affects us all. Balancing good theoretical ideas with the reality of the marketplace and its relationship to investors, the general public and government is key as we move forward.

Encouraging entrepreneurial activity with corporate protection while allowing strong protection for current and future investors has been the foundation of our capitalistic system. Let's think smart and logical to get this job done-whatever solution is chosen, it will affect our economy and ultimately our own pocketbooks. The many questions and possible answers that lay ahead for the industry may seem daunting, but we must remember the greater goal: to encourage the free American spirit of entrepreneurial activity and optimism while protecting the public good. I don't believe overreaction and over-regulation are the way to do it. Smart thinking and logical decisions are.