will be the ones charged with the responsibility of preparing_balance sheets and financial reports called for under this measure. In other words, the signatures of the principal executive officers and directors of corporations will be attached only after the controller has prepared the statement. It seems logical, therefore, to mention the controller in the measure; and to use also the phrase "principal accounting officer", so that corporations or companies which do not have an officer bearing the title of controller, or which combine that office with some other, may be covered. It is suggested, therefore, that in section 4, where provision is made for the filing of financial statements, the language be changed by inserting one phrase Senator MCADOO (interposing). On what line? The CHAIRMAN. Yes; and on what page? Mr. TUCKER. I have not the measure before me, I am sorry to say. Senator BARKLEY. There is one on the table now that you can use. The CHAIRMAN. It is on page 6 of the bill, I believe. Refer to it there and tell the committee what you have to suggest. Mr. TUCKER. It is to be found on page 6, section 4, line 13. [Reading:] signed by the issuer or issuers, its or their principal executive officer or officers, the principal financial officer or officers. Then we propose that you put in there "the controller or". Mr. TUCKER. After the word "officers", or after the words "the principal financial officer or officers." Right in there. Senator MCADOO. At line 15 you suggest that we insert after the word "officers" what? Mr. TUCKER. I suggest that you insert there the words "the controller or the principal accounting officer." The CHAIRMAN. Wouldn't that be covered by the language just above that point? Mr. TUCKER. No, I think not. The financial officer is not necessarily the controller. The CHAIRMAN. And you suggest that we put in what? Mr. TUCKER. That you insert after the word "officers" on line 15 these words, "the controller or the principal accounting officer." The CHAIRMAN. All right. We now have that suggestion. may proceed. You Mr. TUCKER. I would suggest also, following that, these words, "or the person performing the duties of controller." That would make it all-inclusive. The CHAIRMAN. Very well. We have that suggestion. You may go on with your statement. Mr. TUCKER. The law, in the opinion of controllers, will be worth no more and no less than the accounting standards on which the balance sheets required by the measure are based. Senator CAREY. Does this measure provide for any outside audit? I mean any audit besides such as may be made by officers of a company? Mr. TUCKER. I think it does. Unfortunately, accounting is not an exact science, and there are many problems in the higher realms of accounting on which the opinions of the highest authorities are at variance. It is essential, therefore Senator CoSTIGAN (interposing). Have you in mind that the controller shall be a certified public accountant? Mr. TUCKER. No, sir. Senator CoSTIGAN. All right. I just wanted to get your idea. The CHAIRMAN. You may go ahead with your statement, Mr. Tucker. Mr. TUCKER. It is essential, therefore, that responsibility for the accurate ascertainment and proper presentation of the financial facts underlying an issue of securities be placed on a class of men who are technicians, and who will disclose the principles on which they have worked in deciding some of the questions which have an important bearing on determination of the real value of a company's assets. The Controllers Institute some time ago took a stand for observance of the highest ethical standards in corporate accounting practice in the preparation of reports of financial and operating conditions of corporations, to their directors, stockholders, and other parties at interest, in such manner that all concerned may know the actual conditions insofar as such reports may assist in the determination thereof. The Controllers Institute of America will be glad to be of assistance to the Federal Trade Commission in drafting the regulations under which this measure will be administered. The CHAIRMAN. Is that the only amendment that you have to suggest? Mr. TUCKER. Yes, sir. Except that in the same section, where the same language should be made to apply to foreign securities. It is repeated below there in the same phraseology. It speaks of the principal executive officer, the principal financial officer, and so on. I would suggest that the same change should be made there. The CHAIRMAN. What do you think of the provisions of this bill as to foreign securities? Mr. TUCKER. I think they should be effective insofar as responsibility can be placed on persons in this country who are undertaking the responsibility of marketing such securities. The CHAIRMAN. Do you think the bill goes far enough in that regard, or does it go too far, or what have you to say about that? Mr. TUCKER. I should say that I think it just about covers the ground, sir. The source of the information on which the real value of foreign securities can be determined, of course, is abroad, and the men who in this country will prepare the necessary balance sheets and financial reports will have to determine that matter, and will have to rely on their agents abroad to give them the exact information. In other words, they will have to go back to the controller of the foreign company in order to get that information. Now, the responsibility according to this measure as I understand it is placed on the American agent who is marketing the security. Senator BARKLEY. That does not apply to securities issued by a foreign government or any subdivision of a foreign government, does it? Mr. TUCKER. No; and it is pretty hard to determine the value of a security issued by a foreign government. Senator BARKLEY. But you do think it covers all private securities of a foreign nature? Mr. TUCKER. Yes, sir. Senator COUZENS. Do you think that an employe of a corporation should be relied upon for accuracy as to the facts of the situation? Mr. TUCKER. Yes, sir. But as a matter of practice the treasurer, vice president, president, chairman of the board, and directors, who are required in many instances to attach their signatures to financial reports and balance sheets, do so on the say-so of the controller. Senator COUZENS. But as a matter of fact the controller is an employee? Mr. TUCKER. Yes, sir. And there is no way of getting away from that. Senator COUZENS. How is the public to rely upon the accuracy of an employee who is under the direction of a superior officer? Why shouldn't there be provision made that there will be certification by public accountants? Mr. TUCKER. That is provided for additionally. Senator COUZENS. Then it does not make any difference about the statement or certification of such an employee if we are to rely upon public accountants. Mr. TUCKER. Well, as to the original source of financial statements and balance sheets. Senator COUZENS. The public should not give much weight to their certification because they are interested parties, should they? Mr. TUCKER. An independent audit cannot be avoided. And we have no quarrel whatever with public accountants. We are in fact cooperating with them, just as we are cooperating with the New York Stock Exchange in regard to listings. But we look upon this measure as an opportunity for the Comptroller to be of some public service. At the same time we do not in any way or in any sense advocate doing away with or relinquishing examination by public accountants. The CHAIRMAN. Are there any other questions to be propounded to this witness by members of the committee? Senator BARKLEY. Does this provision, under section 3 of the bill, in any way affect the legality of transactions carried on by and between different agencies of the New York Stock Exchange and the New York Curb Exchange? Mr. TUCKER. My understanding of this measure is that it deals with transactions in interstate commerce. Senator BARKLEY. I know, but if a man in California goes in to a broker and asks him to buy stock listed on a stock exchange, it contemplates delivery of the stock to him in another State, and that that stock must have gone through some process of being filed and registered with the Federal Trade Commission. Mr. TUCKER. Yes, sir. Senator BARKLEY. Otherwise the transaction would be illegal. Mr. TUCKER. My understanding of it is that another measure is to come along which will deal with the regulation of securities now in existence. This one deals with new securities. Senator BARKLEY. That this deals only with new securities? Mr. TUCKER. This would apply only in the case of new securities. Senator BARKLEY. Where is there anything in this bill that limits it to present issues? How about stocks now being traded in every day? Mr. TUCKER. I understand that is to be covered by another measure. Senator BARKLEY. I understand so, too; but does not section 3 of this measure cover those securities? I do not see any language in here to limit it to stocks issued in the future. It seems to apply to stocks already issued and outstanding and in the hands of the public. Mr. TUCKER. Well, the control that is to be exercised is at the time of the issuance of a new security, as I understand this measure. They are required to register it at that time. Senator BARKLEY. I do not agree with you about that. I think this measure, or as it seems to me from reading it, covers every sale or every transaction in interstate commerce. Senator STEIWER. Senator Barkley, may I call attention to the language contained in section 4 of this bill, which is: That all securities heretofore referred to in section 3 of this Act shall be registered with the Commission under the terms and conditions hereinafter provided. And the language in section 3 which is referred to apparently is inclusive of everything. Senator BARKLEY. That is it. Section 3 describes, apparently, every share of stock that may now be outstanding or that may hereafter be issued and sold or delivered through the mail or in any other way in interstate commerce. There is no limitation in section 3 as to what stock may be affected. Section 4 goes on to refer to stocks mentioned in section 3. I am trying to get the scope of this bill, you understand. If I had 100 shares of stock in any corporation, and I wanted to sell it to you, you send me a check for it and I send the stock through the mail. That is a transaction in interstate commerce. It seems to me that such a transaction would be covered by this bill. Now, what is it that I must do with reference to finding out whether that stock has been registered with the Federal Trade Commission before I can sell it to you, regardless of any stock exchange transaction? It seems to me that that is covered by this measure. Mr. TUCKER. It may be covered. Mr. TUCKER. Yes, sir; I think it should be. Senator MCADOO. I construe it as you do, Senator Barkley. you Senator BARKLEY. Yes. I do not see any restriction whatever. Mr. TUCKER. Apparently not. The CHAIRMAN. Well, why not include it in here? Senator BARKLEY. That is what I am trying to arrive at. Maybe it ought to be covered, whether it is or not. Therefore, I am wondering just what the scope of this measure is. Mr. TUCKER. In the case of securities already on the market, it is hard to get a new registration. You will see that you have to get a new registration and financial statements and balance sheets. Senator BARKLEY. All matters under this bill are new registrations? Mr. TUCKER. Yes, sir. Senator BARKLEY. You might take stock that has been in existence for 40 years, and it would seem to me that this bill requires that that stock shall be registered with the Federal Trade Commission just as though it were new stock being issued tomorrow. I do not see any difference. 169692-33- -2 Mr. TUCKER. Well, in that case it would be covered by this measure. Senator BARKLEY. It seems to me that it covers all transactions where I go to a broker and buy stock and he sends my money to New York and then sends the stock back to me. That seems to be a transaction in the mail, in interstate commerce, and therefore to cover a transaction on a stock exchange. Mr. TUCKER. It may be that both new securities and those already in existence are covered by this bill. Senator STEIWER. Are you a student of the jurisdiction of the Congress? Mr. TUCKER. No, sir. Senator STEIWER. It appears to deal with interstate commerce. Mr. TUCKER. I am not a student of that. Senator STEIWER. You are not attempting in your statement to refer to those things? Mr. TUCKER. No, sir. The CHAIRMAN. Who composes your institute? Mr. TUCKER. The membership of the Controllers' Institute of America is strictly on an individual basis. The thought in organizing the institute, which is now about a year and a half old, was that controllers had no technical and professional body through which they could make studies of questions affecting their work. So it was organized on a strictly individual basis. Corporations have nothing to do with it. The CHAIRMAN. How is your membership made up? Mr. TUCKER. Well, a man files an application and sets forth all facts about himself, the work he is doing, the position he holds, his experience and training, and on the strength of that information the admission committee of the institute determine whether or not he is eligible for membership. Senator BARKLEY. Who is eligible? Mr. TUCKER. Men who hold positions as controllers- Mr. TUCKER. Not necessarily in corporations. In partnerships, associations, or corporations. And this language is suggested in order to cover prevailing conditions. There are a good many men who are doing the work of a controller where they do not actually give him that title. Senator BARKLEY. What is the difference between a controller and an auditor? Mr. TUCKER. A controller has a slightly wider scope of work than an auditor. An auditor deals only with accounts. A controller has budgeting, statistics, insurance, taxes, and other matters under his jurisdiction. Senator BARKLEY. That would depend upon the power given to such an officer in each corporation, would it not? Mr. TUCKER. Yes, sir. Senator BARKLEY. Whatever they might call him. Mr. TUCKER. Yes, sir. One of the purposes of the institute is to try to standardize that practice. Senator BARKLEY. How many members have you? |