The equity and credit markets (capital markets) in the United States are considered to be among the most efficient in the economically developed world. One reason for the efficient operation of these markets is the public availability of creditable financial statements to individuals and institutions and the confidence in these statements by those using them as a basis for their investment and credit decisions. A potential serious threat to the efficient functioning of these markets is the incidence of fraudulent financial reporting.

Fraudulent financial reporting is intentional or reckless conduct, acts, or omissions, that result in materially misleading financial statements. Confidence in the operation of capital markets is diminished when the system of public disclosure is eroded by reported instances of fraudulent reporting.

John Dingell, chairman of the Subcommittee on Oversight.

In the mid-1980s, the failure of a number of financial institutions led...