St. Joseph’s Prep
Philadelphia, Pa

Teacher: Mr. Conners

The U.S. Government has too many regulations, and it needs more!

John Oberlies

            What causes the government to enact laws of regulation? Most of the time, it uses prior failings or gains as a gauge to predict what will happen in the future, and also to help prevent anything negative. Government regulation is needed to keep the business market running smoothly. Without regulations, it would be total chaos. Many people see the government taking to great of a role in the marketplace today, but I see it differently. Today, in the U.S. marketplace, there are too few federal regulations in place to govern such a high-speed economy. Take for example the Enron scandal, currently unfolding. The Houston based company is in the energy industry, but today, energy is the least of their problems. Enron is in the process of being investigated by the U.S. government for failing to observe federal regulations. The Securities and Exchange Commission (SEC), which is in charge of overseeing publicly traded companies, is the government’s principal investigative agency at the present, although other government agencies are also expected to become involved as time goes on. To avoid having disputes between the government’s agencies like the SEC, and certain businesses, there should be a board to handle these types of situations. On this board should be both government employees and professionals from the business whish is at hand. Public companies, like Enron, have great disputes with the government these days.

A publicly traded company is different than a private one in that in the publicly traded one, hundreds of thousands of people can own a partial interest of the company. As the SEC requires that, “Companies with more than $10 million in assets whose securities are held by more than 500 owners must file annual and other periodic reports.” Upon reading thoroughly, this research paper, one should understand that had the SEC had a better grasp of companies, such as Enron, this company might not be bankrupt. Stricter laws, and more enforcement of basic laws, could have prevented such mishaps.

Blame for the collapse of Enron can be put not on the shoulders of Enron, but on its auditors and accountants at Arthur Anderson.   These auditors, which examine the books and accounting records of such companies as Enron, are responsible for confirming the financial numbers written down in Enron’s books. Arthur Anderson is also in the process of being questioned for “aggressive accounting”. Most companies will use certain tactics to slip through loopholes with regards to certain requirements and rules. This particular firm has been preliminarily charged with possibly crossing this respected line. Within the accounting profession, firms and companies follow the Generally Accepted Accounting Principles, if they are auditing. The GAAP are rules governing the accounting profession. These rules are overseen by the Financial Accounting Standards Board, which consists of a council of seven-academics empowered by the SEC. Did Arthur Anderson actually break any written rules? Are there other companies out there that may have also broken these rules, and if so, how can we be sure that something like this does not happen again?

            Harvey L. Pitt, the chairman of the SEC, which is heading the investigation in the Enron scandal, claims there are two things that will be reviewed. First, finding out who did what, and who or what is held accountable. Second, using this situation as a lesson, and building onto whatever foundation there is, to prevent this from happening again. The main goal of the SEC is to protect investors from getting cheated by investing in companies that are showing fraudulent information. The SEC has people who specialize in certain areas and who a) oversees disclosure of important information for the public; b) reviews documents that publicly traded corporations are required to file with the SEC; c) monitor the activities of accountants. Because this scandal is so recent, not all of the facts are known, but the evidence seems to indicate that these jobs were not being performed to assist the investing public. The SEC should have been monitoring the Enron Corporation more closely, but should it also have been watching Arthur Anderson?

            Arthur Anderson is not only the accounting firm that took on Enron, but also Enron’s financial consultants. The government urges companies not to have the same auditors and consultants in fear that they may cross paths and make compromises. This would not be in the best interest for either the company or the investing public. Because of an Act by Congress in the 1930s regarding the SEC, accounting firms are encouraged to be “more competitive.” This is one of the “costs” attached to federal regulations. We have enough companies today that competition does not need to be urged even more. It may have been all and well in the ‘30s, but many businessmen feel there is enough competition in today’s world and that honesty should be more respected. Enron paid Arthur Anderson $52 million to do both auditing and consulting for their company. From research, it looks like Enron hoped that Anderson would write the appropriate numbers so that the company would still be in business, even if that meant lying. Unfortunately, preliminary investigations seem to be showing that the accounting firm did just that. Arthur Anderson changed some numbers around and used Enron partners Chewco and Jedi to hide Enron’s losses. Enron has overstated its income for more than four years. 

            The future of the stock market and its companies looks predictable based on the Enron scandal. The SEC says it is going to beef up security in order to protect its investors. But again, by doing this, we might be hurting our economy. Investors will be putting their money into stocks of businesses that no longer exist due to the complex rules and regulations they could not meet. We may see the government actually take part in the decisions made by accounting firms, making them not solely run by accountants. Possible scenarios are committees similar to the SEC and agencies that specialize in this field of work. By doing this, businesses that may have tried the same loopholes as Enron, may be getting caught in the web. Arthur Anderson’s executives will probably be seeing some jail time due to the lack of truth they bestowed upon the public. The GAAP will most likely be made into laws and not just accepted principles. As it is right now, too many exceptions can be used to get through the web of standards and rules.

            With all of the facts laid down before Congress, the president, companies like Enron, accounting firms like Arthur Anderson, and the investing public, and after the government takes action against Enron and its partners, we will still have the same problem. Some people will continue to say there is too much government regulation, while others will say there is not enough. The foundation of this argument goes back to the beginning of the U.S. where there was the rich and the poor. The executives of these companies will continue to argue that without some leeway, businesses will fail. On the other hand, investors will say that without more regulations, the investing public is putting their money into companies with unknown truths.

            The majority of Congress would like to see principles and standards actually written down. They would also like to see accounting firms not audit and consult for the same companies. Executive editor of Fortune, Joseph Nocera, puts things into perspective. “What the profession (accounting) really needs is a change of heart— a refusal to go along with deceptive accounting, even if it’s perfectly legal.” As long as the government does not get involved in regulating the global marketplace, the executives will get richer and the investors will continue to bear an unnecessarily harsh risk.