Prevention, Detection, and Reporting of Financial Irregularities

GAO discussed the need for better prevention, detection, and reporting of financial irregularities in public companies subject to the Securities Exchange Act. GAO noted that: (1) company management, independent auditors, and government regulators all play a significant role in ensuring corporate accountability; (2) it had previously recommended numerous auditing and financial reporting improvements for public companies; (3) it believes that Congress should strengthen banking and securities laws to increase management and auditor responsibilities for detecting and reporting irregularities; (4) Congress has twice amended the act within the last 15 years to strengthen prevention and detection; and (5) various professional and government organizations have made recommendations to strengthen compliance. GAO believes that proposed legislation: (1) would require management and auditors to address and report on corporate internal controls and compliance with laws and regulations; and (2) could be improved by provisions requiring audit committees for public companies, peer review for independent auditors, better regulation of auditors, and greater cooperation between auditors and regulators.