Following the collapse of Enron, Worldcom and others, regulators were temporarily given the power to dramatically improve US accounting standards. To be sure, and as the passing of the Sarbanes-Oxley Act of 2002 will attest, restoring investor confidence became a top priority of politicians and Wall Street. Regulators could, and did, pass tough regulations with little resistance.
But while Sarbanes-Oxley succeeded in expanding financial practice and corporate governance regulations, its focus was not on overhauling accounting. Rather, the task of cleaning up accounting standards was largely left to the SEC and FASB. Unfortunately, instead of welcomed changes following Enron, investors got new SEC Chairman Harvey Pitt. Mr. Pitt's first, and perhaps only notable item of business, was to force CEOs and financial chiefs to swear "to the best of my knowledge" that their financial statements were accurate. Apparently the groundbreaking Securities Act of 1933 and the Securities Exchange Act of 1934 left out the part about CEOs not lying to investors.
Suffice to say, more than 4-years after Enron - and with the trials of Skilling and Lay finally starting - accounting restatements continue to balloon higher each year, and the SEC has yet to prosecute a major case of 'certification' fraud (a recent study by Glass, Lewis and Co. tallied 1,295 restatements in 2005, or more than triple the amount the year S-O was passed).
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