BAYLOR UNIVERSITY ROUNDTABLE ON INTEGRITY IN FINANCIAL REPORTING

At the center of the U.S. corporate governance controversy are questions about the integrity of the U.S. financial reporting system. Can investors trust the numbers now being reported in corporate financial statements? And, if not, what steps are being taken to bring about the return of investor trust and confidence? The academics and practitioners who took part in this discussion began by expressing their reluctance to describe the current situation as a “crisis.” The consensus was that the recent governance failures are not the reflection of a general decline in corporate moral standards, but rather the work of a handful of opportunists who found ways to exploit some weaknesses in the present system. Part of the discussion focused on the expected benefits (and costs) of the heightened regulatory scrutiny provided by the Sarbanes‐Oxley Act and the newly formed Public Company Accounting Oversight Board. But most of the panelists placed greater emphasis on the role of self‐regulation in resolving problems such as the conflicts of interest within auditing and brokerage firms that played a major role in scandals like Enron and WorldCom. And rather than relying on more vigorous SEC oversight of financial statements, a number of panelists argued that top priority should be given to comprehensive reform of U.S. accounting standards, which are said to be a major source of confusion for both managers and investors.