Editorial: Law will help fix confidence in businesses

Published 12:00 am Tuesday, July 30, 2002

While it is unfortunate that the federal government is further involving itself in American business, this week’s Congressional compromise on a law that toughens accounting rules and increases penalties for corporate cheaters was much needed.

Reaching a compromise on the measure relatively quickly, Congress agreed on what are being called the stiffest restrictions on accounting practices since the Great Depression. The new law will require CEOs of public companies to personally vouch for the accuracy of financial records, creates criminal penalties for corporate wrong-doers and establishes an independent board to monitor accounting firms.

Urged on by the stock market’s recent plunge, Congress backed by President Bush is making it clear that corporate America needs to put its house in order.

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There is an argument, and not a bad one, that more regulation is not needed. The crashing values of companies send in themselves a strong signal that honesty is expected and business practices can be expected to improve in response to investor disgust with companies like Enron. However, those corrections are slow to take place. This latest government action sends a fast and clear signal that there will be far less tolerance of accounting tricks designed to inflate profitability.

Congress and the president are right to move out quickly. Restoring confidence in business is essential, and the new law will only help.