[Michele Norris:] The Arthur Andersen document-shredding case, along with other high-profile bookkeeping scandals, ushered in an era of new rules and federal oversight in the accounting industry. To help us better understand how the industry has changed, we turn to Lynn Turner. He's a former chief accountant at the Securities and Exchange Commission. Thanks for being with us.
[Mr. Lynn Turner:] It is great to be here today with you.
[Michele Norris:] First, Arthur Andersen, the firm and its role in destroying Enron-related documents-was this seen as an isolated case or did the investigation and the eventual conviction have an immediate impact on the industry?
[Mr. Lynn Turner:] The impact of the document shredding that showed up all over the front pages of all the major newspapers, I think, did have a direct impact on the accounting profession. And, of course, it certainly had an impact on the subsequent legislation that got passed such that those type of events, hopefully, would not occur again today.
[Michele Norris:] You're speaking of the Sarbanes-Oxley legislation. Explain to us the law and its impact on the industry.
[Mr. Lynn Turner:] Sarbanes-Oxley was legislation passed by Congress in the summer of 2002 and then signed by President Bush. In it, about half of the language deals with setting up a new regulator for the accounting profession called the Public Companies Accounting Oversight Board that oversees the audit firms. The rest of the legislation deals with some important things like ensuring that management is held accountable for the financial reports that they file with the SEC. It improves the independence of corporate boards, as well as the independence of the auditors, and it increased some of the penalties for those who shred documents or violate the security laws.
[Michele Norris:] There was a long of hand-wringing within the industry while this legislation was under discussion on the Hill. What's happened now, since the law's gone into effect?
[Mr. Lynn Turner:] We really are starting to see much better audits performed than what we used to see. Errors in the books get caught much quicker, such that the investors aren't given the surprises that they were in the case of Enron and WorldCom and Qwest and the like.
[Michele Norris:] Has there been a question about enforcement? You know, who's actually doing the oversight now?
[Mr. Lynn Turner:] With respect to the audit firms, it's very clear that the Public Companies Accounting Oversight Board has the role of enforcement, albeit the SEC is still playing the major cop on the beat. On the company side, I think all the law enforcement agencies, running from the Justice Department to the SEC to the state attorney generals, such as Galvin in Massachusetts and, of course, Spitzer in New York, are all playing very key and very important roles in protecting investors.
[Michele Norris:] You know, changes like this that we're talking about in the industry-does this largely impact the corporate world, or does this in some ways touch the lives of ordinary Americans, folks like you and me? And if it does, how so?
[Mr. Lynn Turner:] I think the scandals have touched many Americans. There are 90 million Americans who have put their money in the capital markets and have invested there through their 401 [k] s or IRA accounts. So the frauds and the loss in market value of some $9 trillion certainly affected everyone. In terms of the regulation and reforms, as the numbers get better you can have more confidence in those numbers. You can get better stock information, better stock prices. And, hopefully, you won't see your savings disappear like they did in the summer of 2002 as everyone watched their 401 [k] accounts just plummet in value. So I think the investor safeguards that have been put in place are impacting everyone today, especially as we start to talk about the greater use of private accounts and expansion of some of these retirement programs.
[Michele Norris:] Lynn Turner, thanks for talking to us.
[Mr. Lynn Turner:] Thank you for inviting me.
[Michele Norris:] Lynn Turner, managing director of the financial research firm called Glass, Lewis & Company. He's also the former chief accountant at the Securities and Exchange Commission.