More accounting bureaucracy needed?

Paul Volcker, former Fed chairman, chairman of the International Accounting Standards Committee, and the chair of the independent oversight board at Arthur Andersen, calls for "a new independent public oversight body to emphasize and reinforce the central role of the auditing firm," in today's Wall Street Journal.

He makes several points:
-- Arthur Andersen is dead
-- Reforms will be self-initiated by auditing firms but that is not enough
-- To be viable as a stand-alone auditor, clients will have to be willing to pay for pure auditing and auditing firms will need a new regulatory body
-- Volker outlines his litmus test for the legislation needed to establish this body
-- Sen. Paul Sarbanes (D., Md.) legislation is the only one that passes Volker's test

Volker brushes off the ability of the industry to self-correct with little explanation--just that "the historical record affords no comfort on that score." Perhaps, but the Arthur Andersen explosion surely is a wake-up call that will be heeded. And it is not clear that creating more bureaucracy won't simply create more obstacles for businesses to run around and remove some of the moral hazard that exists today. If investors want unconflicted auditing, that pressure should be felt on the share price so that companies are motivated to hire pure auditors and pay a premium for it. If they don't, legislators should ask why before creating red tape that will shift companies focus from soothing investors to soothing regulators.