S 1636 23 APPENDIX C CONGRESSIONAL RECORD rities, the distribution statement might consist of the information concerning the particular offering and be accompanied by the Issuer's annual report together with a statement of any material current developments required to make the information in such report not misleading. Alternatively, the Commission might prescribe the preparation of a brief distribution statement incorporating annual and other reports by reference, In a manner similar to the Commission's development of S-7 forms for corporate issuers. The objective would be to minimize interference with the natural workings of the marketing system. Subsection (e) would provide exemptions from the distribution statement provisions of subsection (b) for offers and sales of municipal securities by issuers under specified conditions. Exemptions would be available to municipal fasuers in those states which actively supervise local financings and where the disclosure with respect to such offer or sale of municipal securities has been approved by a State governmental authority (other than the issuer) expressly authorized to grant such approval. Other exemptions from the distribution statement provisions of this section would be available to offers or sales by a municipal securities issue meeting the criteria of sections 3(a) (9) and 3.a) (10) concerning exemptions from registra tion, and sections 4:1). 4(2), 4(3) and 4(4) concerning exempted transactions, under the Securities Act of 1933. Subsection (d) grants the Commission authority to change the minimum dollar amounts set forth in the provisions requiring the preparation of annual reports and distribution statements if, giving due regard to such factors as general economie conditions, costs involved, and the nature of the distribution system. such change is deemed to be appropriate in the public interest. Allowing the Commission to adjust these levels appears appropriate in light of the lack of the Commission's experience in administering such disclosure requirements, its general unfamiliarity with the operations of the municipal markets, and the absence of any accurate figures to indicate the type and quantity of issuers affected at any specific level. Subsection (e) would grant the Commission authority to prescribe the form or forms in which reports and distribution statements shall be set forth and the accounting methods to be followed in the preparation of financial statements. Subsection (f) is intended to ensure that reports and distribution statements are made available to investors. Subsection (g) provides a limitarlou on the llability of underwriters of municipal securi ties similar to that provided by section 11(e) of the Securities Act of 1933 for underwriters of corporate securities offerings. The bill contains no specific provisions regarding civil liability for material misstatements and omissions. Instead, the general antifraud provision would apply here as well as in those cases in which a municipal securities broker, municipal securities dealer, and bank acting as agent, received copies of a distribution statement pursuant to subsection (1) (2) in connection with an underwriting. Such persons would be responsible to perform such reasonable investigation as the antifraud provisions are deemed to require. Documents prepared pursuant to section 13A would not be Aled" with the Commis sion. Of course, the general antifraud provions of the securities law would remain applicable. Section 3 provides the effective date for the bill. Mr. TOWER Mr. President. I am joining Senator WILLIAMS in cosponsoring the Municipal Securitles Full Disclosure Act of 1976 only because I believe that it is one approach to the issue of municipal securities disclosure that should be given fair and bipartisan consideration by the Securities Subcommittee during its upcoming hearings. I also believe that this approach to disclosure is preferable to other suggestions which would subject municipalities to the full registration and disclosure requirements imposed on corporations. That is an approach which I would strongly oppose. This does not mean to say that I wholeheartedly endorse the approach in this bill nor necessarily endorse all of its provisions. I have serious reservations over the role which the Federal Government could come to play over State and local units of government. For that reason, I will be interested in hearing from the various witnesses on how they feel State and local prerogatives would be protected under this bill and whether or not they feel this is a viable approach. This is an important issue that will need a lot of hard work and careful thinking on all sides. Certainly, if it is evident that changes are needed in present disclosure arrangements, my hope would be that an approach will be taken that preserves, to the maximum extent possible, the rights of State and local governments and the use of market forces. Senator WILLIAMS. Arthur Andersen sponsored a study which led to the preparation and publication of the booklet 'Sound Financial Reporting in the Public Sector-A Prerequisite to Fiscal Responsibility." It is a significant document. All that have seen it agree and I'm going to include it in the record of our hearings. I'm sure it will be very useful to members in coming to a judgment on this pioneering legislative approach, an area that has been exempt from all but the antifraud provisions of the Federal securities laws for 43 years now while all other issuers have been included. [The booklet is reprinted as follows:] PREFACE In our democratic society, all citizens, groups and organizations need to speak out on issues which they consider important to maintain the effectiveness of our political and economic system. If this country is to maintain effective checks and balances in our political system, public officials must be held accountable for the financial affairs of the activities in the government for which they are responsible. To achieve accountability, effective accounting controls and sound financial reporting are essential. We are not experts in politics, international relations or economics-we are, however, experts in financial reporting, accounting controls and financial systems. Because of our concerns over current financial problems in certain governmental units, many of which problems are accelerating because of the recent recession, inflation and other serious developments, we inquired about the accounting controls and financial reporting of the United States Government. Certain interesting and surprising observations resulted from this inquiry. In order to encourage public discussion on the need for sound accounting controls and financial reporting in all units within the public sector, we are publishing a summary of our findings, conclusions and recommendations. For illustrative purposes, a set of consolidated financial statements for the United States Government was prepared on the accrual basis using the reporting format followed in the private sector. This booklet presents the results of that effort. Detailed documentation of the sources used and the derivation of the amounts reflected in the accompanying financial statements is available upon request. Our discoveries in this effort, combined with our experience with financial reporting, caused us to raise a number of questions, some of which are set forth herein. We do not present answers to these questions be. cause many of them involve economic or political issues. However, certain of these questions are those which Government officials and leaders in the financial community will face in the next few years. Many of the same questions, issues and concerns are applicable to cities and states as well as to other nations and their governmental units. During this inquiry we contacted numerous departments, agencies and other units in the Government. We want to acknowledge the significant enthusiasm with which our project was received, the serious interest on the part of Government employees with whom we discussed the financial data needed to complete our project and the sincere desire each of them had to be helpful to us. Without this cooperation, this project could not have been completed. September 10, 1975. ARTHUR ANDERSEN & Co. Observations Concerning Current United States Government Accounting and Financial Reporting 3 2 3 Government Expenditures and Gross National Product 31 History of Accounting in the United States Government 32 4 Accounting and Reporting Questions Raised by Illustrative Consolidated Financial Statements ... 34 5 Excerpts from Section 3 of Securities Act of 1933.. 35 |