Changing the U.S. capital market system.

The U.S. capital markets are poised for a face lift in the wake of a new report from the U.S. Chamber of Commerce recommending a variety of changes. As business advisors, we should be leading conversations on this issue. At the very least, we should be prepared in case someone else introduces the topic.

The recommendations from the U.S. Chamber of Commerce include:

* Update the federal government's regulatory approach to financial markets and market participants.

* Persuade domestic and international policy-makers to address the risks of catastrophic litigation faced by public auditing firms and also allow national audit firms to raise capital from private shareholders other than audit partners.

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* Make the Sarbanes-Oxley Act of 2002 (SOX) part of the Securities Exchange Act of 1934, thereby giving the Securities and Exchange Commission (SEC) the flexibility to address issues relating to SOX implementation.

* Increase retirement plan participation by introducing a simpler, consolidated 401 (k) program and connecting employers with 21 or more employees to a financial institution that will offer retirement arrangements for such employees.

* Convince public companies to stop issuing earnings or move away from quarterly earnings guidance with one earnings per share (EPS) number to annual guidance with a range of EPS numbers.

The impact on the profession

While some of the recommendations affect CPAs indirectly as part of our role in the business machine, others affect us very directly, especially those in the audit field.

As a partner at Ernst & Young, I am especially interested in the proposal for greater protection for audit firms against catastrophic litigation. A healthy, stable auditing profession is the foundation to flourishing financial markets. Yet the report points out several factors that threaten the stability of the audit profession:

* Unrealistic expectations on the level of assurance provided by an audit

* Inherent limits on an audit's ability to detect fraud

* The precedence of indicting an entire firm rather than responsible audit partners

* The inability to secure necessary insurance coverage to protect against litigation

* Barriers to interstate and global service

The report also calls for allowing a limited number of national audit firms to raise capital from non-partners in hopes of generating the birth of a fifth global audit firm.

Taming Sarbanes-Oxley

Bringing SOX under the Securities and Exchange Act gives the SEC a "chair and whip" to help improve the effectivenss of SOX for business and investors. It also allows the SEC to fine tune SOX to make sure it continues to fit the evolving business environment. From an international perspective, the SEC would have the authority to grant exemptions to foreign registrants already subject to comparable requirements in their home country.

Focus on retirement planning

The commission also has several recommendations for improving retirement planning, to the benefit of both employees and the capital market.

Small employers would be paired with financial institutions that would, in turn, offer retirement savings programs to employees. This would allow even employees of small organizations the opportunity to participate in automatic payroll deductions for contributions to 401 (k) or other plans. While this would certainly benefit employees, it would also increase the stream of resources flowing into the capital markets.

Show your knowledge

I've only scratched the surface of the proposed changes. You can read either the executive summary or the full report at www.capitalmar-ketscommission.com.

This is our opportunity to encourage greater dialogue not only on the above recommendations, but other possible solutions. We have a chance to demonstrate our value and skill as business advisors by sharing our insight and opinions with our clients, regulators, politicians and peers. It is our responsibility as financial professionals. As an added bonus, you now have a topic for your next lunch with clients or colleagues.

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David A. Simko, CPA

Chair of the Board