WASHINGTON, DC - U.S. Senator Richard C. Shelby (R-AL) today commented on accounting and investor protection issues surrounding problems with the Enron Corporation and other public companies:
"I think that everyone recognizes the Enron story is what has focused our attention and led to today's hearings. I am hopeful that the present investigations will uncover the facts and lead to the appropriate sanctions if it is determined that any laws were broken."
"The Enron story, however, is just one chapter in a larger book. Its collapse is just one indication of the existence of much larger problems. Enron highlights systemic issues which merit consideration.
"Over the last few years, a troubling pattern has developed. Time and again we have heard of public corporations having to restate the financial information they provided to the investing public.
"These recalculations have not been made because the corporations were too conservative in their assessments. Indeed not. What we have seen are corporations admitting that revenues were not as large, that expenses and losses were not as small, and that, in the end, things were not really as good as had been initially indicated.
"That public companies would try to make things sound as positive as they can to the investing public does not surprise me. Obviously, they have a strong interest in driving up their share prices.
"This self interest, however, has long been recognized. To counter it, our financial markets have traditionally relied on the independent, objective analysis of audits performed by certified public accountants.
"The outside audit gave investors confidence that corporate numbers did not come from the land of make believe. Investors could make decisions knowing that, for whatever risks they were taking, at least the financial information had been reviewed and certified as true by an unbiased party.
"Regrettably, growing doubt is replacing investor confidence regarding the accuracy of financial information. The trend of restatements and audit failures has put the independence and objectivity of outside auditors in question. In far too many cases, the numbers have just not added up.
"There are serious consequences associated with this situation. First, real people have lost real money because they relied on information that later proved to be inaccurate. Look at the Enron situation: billions of dollars of market value has been wiped out and investors and creditors will get back very little of what they put into the company.
"Unfortunately, Enron is only the tip of the iceberg. Some experts have estimated that investors have lost almost $200 BILLION over the last six years due to earnings restatements and lost market capitalization following audit failures. "It must be noted that some amount of that $200 billion represents retirement savings, investments for children's educations -- the financial hopes and dreams of thousands of American citizens. All gone, after the follow-up stroke of an accountant's pen.
"There are additional but perhaps less tangible losses associated with the unchecked flow of bad financial information in the marketplace. When some companies put out inaccurate information about their financial condition, investors cannot make informed investment decisions. They make choices based on appearances instead of reality. What results is that good companies that provide useful goods and services fail to attract their fair share of funding because less valuable companies look better on paper. Our society suffers because the development of new and better products and services is delayed or never actually occurs.
"When auditing failures result in good investments on paper being bad investments in reality, capital does not flow to its best use, the market does not properly reward innovation, and over time, the firms that lose out themselves see the value of cooking the books. The unchecked flow of bad financial information in the marketplace has a final and perhaps most devastating effect: it destroys investor confidence.
"If people believe that the markets are rigged, if they believe that some have greater access to crucial information, if they cannot trust the information that is available to them, they walk away. They stop participating.
"Our economy has provided the best material standard of living in the world because the goal of our laws and regulations has been to favor clarity over complexity, disclosure over dissembling, and fairness over favoritism. Mr. Chairman, it would seem that the important goals we once established are no longer being met. Audits no longer consistently provide the type of accurate information that the markets require.
"At the end of the day, I believe it is our responsibility to do something about this serious problem."