Senate clamps down on accountants

As markets continued to tumble, the Senate passed a bill tightening regulations on accountants and imposing tough penalties on corporate officers and directors whose firms issue inaccurate financial statements.

With no politician in the land willing to be seen as soft on corporate crime in the run-up to this autumn's mid-term elections, the bill won overwhelming bipartisan approval. "Frankly, if they called for decapitation as the penalty, it would pass," one Senator commented.

The chances are that when the bill is merged with the weaker accounting reform approved by the House of Representatives in April – now largely overtaken by events -- it will provide the heart of the legislation that will go to President Bush for signature in time for the summer recess.

"I am pleased the Senate has now acted on a tough bill that shares my goals," the President said in a statement after the vote. "We owe it to America's workers and shareholders to crack down on wrongdoing and fix the system to prevent future abuses."

The Senate bill contains notable departures, including a new independent regulatory board for the accounting industry and the requirement that auditors change the lead partner on a company account every five years. It does not ban accountants from offering consulting services to clients, but does clamp down on potential conflicts of interest.

Henceforth, directors will be held directly responsible for their companies' accountants. CEOs and chief financial officers will have to sign off in person any financial statements. If the figures have to be changed, they will forfeit bonuses. If there is criminal intent to deceive, they will face stiff jail terms.

The one big disagreement is over stock options – a large component of the inflated salaries paid to many senior executives – which reformers say should be treated as an expense on company balance sheets, causing profits to be reduced.

Coca-Cola has recently become the first large US company to adopt the practice voluntarily, but congressional opponents blocked a move last week by Senator John McCain to have stock options reclassified as an expense.

Yesterday, Mr Bush again demanded that corporate America clean up its act and urged prison sentences for transgressors. "You have a responsibility to our society," he told company directors in a speech in Alabama.

But the initial response was as bleak as last week, when the Dow fell 5 per cent in two days after his speech on corporate behaviour. The markets are unimpressed by Mr Bush's generalisations, while his own past business dealings have left him open to charges of corruption.

Paul Sarbanes, the Maryland Democrat behind the Senate bill, called on Mr Bush to tell the Securities and Exchange Commission to make public details of its inquiry into his 1990 sale of $848,560 (£540,000) of stock in Harken Energy, the Texas oil company of which he was a director.

Though the SEC found no evidence of insider trading in the sale, which was followed by news that sent Harken stock tumbling, Mr Sabanes urged Mr Bush to "lay out all the facts and let the country have a look at them [so] this constant agitation will be put to rest".

He also demanded more information about alleged audit irregularities at the Halliburton oil services company between 1998 and 2000, when the Vice-President, Dick Cheney, was its chief executive.