Questions about corporate accounting have come to the fore since late last year on the Hill not only because of the collapse of former energy giant Enron, but also from the recent accounting malfeasance at such companies as Global Crossing and WorldCom Inc.

Also, accounting giant Arthur Andersen LLP has been under the gun after having acted as the chief financial auditor for both Enron and Global Crossing.

Rep. Richard Baker, R-La., chairman of the House Financial Services Capital Markets Subcommittee, noted Wednesday that American investors, who now represent nearly half of all U.S. households, rely on accurate financial market information to base their investment decisions.

At question, he said, is whether corporate financial disclosures are guided by accounting principles that ensure information is released not only consistently but also comprehensively.

"In continuing our efforts to restore investor confidence, it's crucial that the subcommittee examine generally accepted accounting principals and the practical implementation of these principles in corporate America," Baker said.

"If there are problems involving accounting standards, the inquiry must begin by determining to what extent they result from their implementation or from problems inherent in the standards themselves," he added.

Baker and fellow committee members heard from Betty Montgomery, Ohio's attorney general; Charles Hill, director of research, Thomson Financial/First Call, a financial information company; William Holder, an accounting professor at the University of Southern California; and Ken Boehm, chairman, the National Legal and Policy Center.

In her testimony, Montgomery focused on how the financial collapse of Enron and Global Crossing has affected the pension investments of Ohio public employees. Ohio is currently seeking lead status in a class action lawsuit against Global Crossing and accountant Arthur Andersen to recoup losses to the state's pension system.

She said that overall Ohio's public pension system lost more that $116 million from the Global Crossing collapse and $114 million from the Enron collapse.

"Playing fast and loose with accounting standards and financial figures is precisely the kind of activity that I thank this committee for investigating. It simply cannot be allowed to continue," said Ohio's attorney general.

"While our (Ohio's) pension funds remain strong, the fraudulent financial practices of these two companies (Enron and Global Crossing) certainly cannot be overlooked. What is more, it is incumbent upon or -- as public servants -- to work diligently to ensure these kinds of fraudulent disasters do not happen again," Montgomery added.

She outline a number of the elaborate accounting practice used by Global Crossing to "swap" network capacity with fellow networking companies, a common practice used to gain additional network bandwidth in key geographical areas. However, companies then put such "swaps" down on the corporate books as revenue when they were usually just straight exchanges.

"According to Roy Olofson (who blew the whistle on Global), a former vice president of finance for Global Crossing, the company routinely entered into deals in which Global Crossing exchanged network capacity for identical or unnecessary routes with exchanging any cash for the (sole) purpose of generating paper revenues, cash flow, and earnings," Montgomery told the committee.

Charles Hill, director of research at Thomson Financial/First Call, noted that accounting abuses in the corporate world have become more rampant in recent years for three key reasons: huge management compensation incentives; a longer and larger financial "bubble" starting in the early '90s compared to earlier financial boom periods; and because of an increasing dependence by stock analysts on compensation tied to the investment banking side of their firms (such as brokerage/investment banking firms like Merrill Lynch.)

"There was so much at stake (among corporate management) that the incentive to push the envelope on accounting or on the 'adjusted' earnings cited in the earnings release was huge," Hill said. "Apparently some managers succumbed to temptation."

Hill added that because accounting abuses have recently grown even more greater, and because "some companies still do not get it" with regards to accurate financial disclosures "it follows that the remedies ... (for recent abuses) may have to be more severe and far reaching" than for prior accounting malfeasances.

Holder, an accounting professor at USC, said that in addition to potential reform of official accounting rules, "those ... who audit financial statements also need clear, complete and unequivocal professional standards to guide their work."

"Professional accountants deserve such guidance so that they can practice with the confidence that their work is acceptable and conforms to norms of expected conduct," Holder said.