Magazine article The CPA Journal

An Interview with Charles D. Niemeier Public Company Accounting Oversight Board Member

Magazine article The CPA Journal

An Interview with Charles D. Niemeier Public Company Accounting Oversight Board Member

Article excerpt

At the Frontlines in the Battle for Investor Protection

The Public Company Accounting Oversight Board (PCAOB), a private-sector, nonprofit corporation, was created as a result of the Sarbanes-Oxley Act of 2002 (SOX). Its stated purpose is to oversee the auditors of publicly held companies and ensure fair and independent audit reports to protect investors' interests. The Securities and Exchange Commission (SEC) appoints the five members of the PCAOB, two of which must be (or have been) CPAs.

Charles D. Niemeier has served as a member of the PCAOB since 2002, and was acting chairman from January to June 2003. He was previously chief accountant in the SEC's Division of Enforcement and cochair of its Financial Fraud Task Force. Prior to joining the SEC, Niemeier was a partner at Williams & Connolly LLP, a law firm in Washington, D.C., and earlier, spent 10 years as a practicing CPA. Niemeier's comments below are his own and do not necessarily reflect the views of the PCAOB, other board members, or staff.

Mary-Jo Kranacher, editor-in-chief of The CPA Journal, spoke with Niemeier on October 8, 2008, in Washington, D.C. They discussed the effects of deregulation, the need for reform of financial reporting standards, and the ways that auditors are dealing with pressure from business lobby groups.

Time for Reform

The CPA Journal: At the NYSSCPA's conference in September mat addressed the SEC, the PCAOB, and current developments under Sarbanes-Oxley, you were very candid in your remarks that the SEC is rushing toward the adoption of International Financial Reporting Standards (IFRS). You said that, for a variety of reasons, you think the adoption of IFRS should be reconsidered Has the current financial crisis affected your position on this issue?

Charles D. Niemeier: If anything, the current crisis has expanded the need for the SEC to reconsider its direction. The current proposed approach is a by-product of what we were hearing a year ago-the need for America to deregulate in order to be more competitive. That included a number of different initiatives, one of which was to reduce the requirements embedded in our accounting standards and move toward IFRS. Last year, the SEC eliminated the requirement to reconcile financial statements prepared under IFRS with U.S. GAAP. So, as of today, there are two sets of accounting standards in use in the United States.

Those initiatives were not the right way to go. Even the people who were consistently beating the drums for deregulation have gone quiet, and for good reason. Deregulation has caused much of the chaos that we find ourselves in today.

The Sarbanes-Oxley Act addressed a number of the problems that became apparent as a result of the Enron and WorldCom accounting scandals, but it didn't go far enough. Many accounting-related issues were addressed, but problems related to corporate governance and executive pay were not. When we dissect what happened in the credit meltdown, we are going to find that certain issues that went unaddressed contributed to the current crisis-such as the lack of any real correlation between executive pay and long-term results. Where were the boards all this time?

In addition, we witnessed off-balancesheet risk-taking. This is similar to what happened at Enron. We knew this was a problem then, but the Sarbanes-Oxley legislation did not address it because critics were already crying that it was too much regulation. Opponents of SOX were trying to get us back to pre-SarbanesOxley days.

It is quite unfortunate, but the simple truth is that the only time real reform takes place in this country is after a disaster strikes. We must take a hard look at the additional steps that need to be implemented to improve investor protections. There is no better time to do that than now.

Adoption of IFRS

CPAJ: Do you think recent events could change the course, or the time frame, of U. …

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