POST ENRON AUDIT LEGISLATION IN NEW YORK STATE
The reaction to Enron's financial collapse has led to a flurry of activity in Albany which it is likely to continue to grow in the weeks ahead. We solicit your company's input since the initiatives being proposed are not ones we have dealt with in the past.
Specifically, we would very much appreciate your assessment of the various legislative initiatives which are being actively considered by the New York State legislature. These initiatives would affect existing relationships of publicly traded corporations with their auditing and accounting firms.
These proposals would, to varying degrees, prohibit the provision of non-audit services to firms for whom audit services are already being provided.
The regulations and restrictions proposed by the various sponsors would affect:
- corporations which are incorporated in New York State;
- auditing firms licensed by the state; or
- investments by the state''s pension funds in publicly traded companies.
ON NEW YORK INCORPORATED COMPANIES - A.9831
Richard Brodsky, the new chair of the Assembly Corporations, Authorities and Commissions has introduced legislation (A.9831 Brodsky, et al.) which creates a new Article 17 of the Business Corporation Law (BCL) which would prohibit corporations which file annual or quarterly reports to the SEC from having "non-audit services" provided by any firm which prepares the firm''s corporate financial audits.
"Non-audit services" is defined as follows:
"NON-AUDIT SERVICES" SHALL INCLUDE, BUT NOT BE LIMITED TO, BUSINESS CONSULTING, BOOKKEEPING SERVICES, APPRAISAL OR VALUATION SERVICES, FAIR NESS OPINIONS, CONTRIBUTION-IN-KIND REPORTING, ACTUARIAL SERVICES, INTERNAL AUDIT OUTSOURCING, MANAGEMENT FUNCTIONS, BROKER-DEALER SERVICES, INVESTMENT ADVISEMENT, INVESTMENT BANKING, EXPERT SERVICES, RISK CONSULTING, TAX SERVICES, CORPORATE FINANCE SERVICES, HUMAN CAPITAL CONSULTING, LEGAL SERVICES, BUSINESS INTERNET SERVICES, ASSURANCE SERVICES, AND OUTSOURCING SERVICES.
OF STATE RETIREMENT FUNDS
Section 2 of the Brodsky legislation would also amend the state retirement and social security law to prohibit the state pension funds from investing in corporations which have audit and non-audit services provided by the same firm:
"THE TRUSTEE OR TRUSTEES OF A FUND SHALL NOT INVEST IN CORPORATIONS REQUIRED TO HAVE CORPORATE FINANCIAL STATEMENTS AUDITED BY AUDITING ENTITIES WHERE ANY SUCH AUDITING ENTITY OR ITS PARENT COMPANY OR COMPANIES, OR ITS SUBSIDIARY COMPANY OR COMPANIES, OR DIVISIONS OR SUBDIVISIONS OF SUCH AUDITING ENTITY, PERFORM, IN ANY MEANS, NON-AUDITING DUTIES FOR THOSE CORPORATIONS BEING AUDITED."
OF SERVICES TO PUBLICLY TRADED CORPORATIONS - S.6164
Senator Dean Skelos has introduced legislation (S.6164) which amends the state education law to provide that:
"No certified public accountant....shall provided accounting services, other than the provision of an audit, to any corporation, the shares or bonds of which are publicly traded, upon which such accountant has conducted an audit within the previous five years."
OF STATE AGENCIES, DEPARTMENTS AND RETIREMENT FUNDS -
A.6269; A. 9768
Senator Kenneth LaValle and Assemblyman Thomas DiNapoli have introduced legislation (A.6269; A. 9768) which would prohibit firms which audit "the activities and operations of any department, bureau, board, commission, authority or any other agency or instrumentality of the state" or "any retirement system" of the state from providing "non-audit services".
The LaValle/DiNapoli legislation would also place a limit of seven years on firms performing audit activities for state entities and its retirement systems. A further restriction involves a two year prohibition of any auditor being hired by the state entity for which an audit was performed.