"The AICPA and its members are committed to taking the steps necessary to restore public confidence in the accounting profession and capital markets system," said Castellano. "We will work actively with Congress to develop meaningful public policy reforms."

Castellano's recommendations for reform mirror those already proposed by the Securities and Exchange Commission, including a modernized financial reporting model that provides greater disclosure to investors and more frequent reporting, revised accounting rules for special purpose entities, a new auditing standard that would result in significant change in auditor performance, and required reports on internal control where the auditor should be required to report separately on the effectiveness of the management assertion.

"Support for reform should not be limited to standard setters, regulators, and those whose oversight can take on formal qualities," Castellano stated. "All interested parties -- including but not limited to the accounting profession, the investment community, registrants, creditors, and the financial industry -- should be actively and constructively engaged. They should be united by the common goal of empowering investors."

FASB Outlines Its Role in Standard Setting

Testifying before the same committee, Financial Accounting Standards Board (FASB) Chairman Edmund L. Jenkins outlined the FASB's role in setting U.S. accounting and financial reporting standards and how they protect investors.

Jenkins outlined the FASB's ongoing work and projects aimed at providing improvement to various current requirements, including the accounting for special-purpose entities. Jenkins stated that the FASB has accelerated work on its consolidations project and plans to issue proposed guidance relating to special-purpose entities in the second quarter of this year.

In response to concerns raised by SEC Chairman Harvey L. Pitt and others about the speed of the FASB's standard-setting activities, he commented that the FASB has undertaken several projects to improve its "efficiency and effectiveness without jeopardizing the openness, thoroughness and effectiveness of our open due process."

Jenkins pointed out that the FASB has no authority or responsibility with respect to auditing, independence or scope of service matters. As a result, the FASB and its accounting standards "cannot alone sustain the transparency necessary to maintain the vibrancy of our capital markets. Other market participants also must carry out their responsibilities in the public interest. Those participants include reporting entities, auditors and regulators."

Whistleblower Blames Two Execs and One Accounting Firm

Sherrin Watkins, the Enron whistleblower that testified before the committee Thursday, said two top Enron executives in particular were accountable for Enron's collapse and for duping its CEO Kenneth Lay: former Enron chief executive Jeffrey Skilling and CFO Andrew Fastow.

In addition, Watkins said other culprits included the company's auditor, U.S. firm Arthur Andersen, its lawyer, Vinson & Elkins, its chief accounting officer Richard Causey and treasurer Ben Glisan.

Watkins, a CPA, worked for Andersen for eight years before joining Enron. She accused her former colleagues of using stock as an income transfer. She said she did not alert the SEC because she felt the company could fix the problem.

To add your voice to Letters to the Editor, write editor@smartpros.com. All letters become the property of SmartPros and may be edited for space, clarity, relevance and fairness upon publication. Read the most recent Letters to the Editor.