Speech by SEC Staff:
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Good morning and thank you Norm for that kind introduction.
Ladies and gentlemen, this is my last major speech as an SEC official because I will be returning to the private sector very soon. I would like to take this opportunity to say thank you for giving me the opportunity to serve you and all of the other SEC constituents, especially investors, for almost three years.
I assure you I gave it my all and that I enjoyed working with all of you. I hope you have enjoyed working with me as well.
From my point of view, this is an almost perfect setting for my last major speech. Why? Because I am sharing the podium with my long time friend and mentor, Norm Strauss, joined by my new friend and mentor, Bob Herz.
Further, we are in New York City, where I began my career in "technical", as Norm would say, with his encouragement and guidance. Of course, Bob, it was during my tenure at the FASB where I developed many of the skills necessary to serve at the SEC.
But, before I continue, I must remind you that my remarks are my own and do not necessarily represent the views of the Commission, Commissioners or other members of the Commission's staff.
Today, I am going to reflect on some of the events I have encountered during my time at the SEC and what I believe are some of the challenges that lie ahead.
My tenure at the SEC, first as Deputy Chief Accountant and most recently as the Acting Chief Accountant, has been very challenging. During that time, together we have experienced:
While navigating through some of these events has been tough, those events resulted in some very positive changes to the capital markets systems and processes and to the accounting profession. I hope the positive momentum will continue as it only serves to further strengthen our capital markets and our profession.
But, enough about the past - let's talk about the future.
While the big push of Sarbanes-Oxley is behind us, the Office of the Chief Accountant still has much to accomplish in the coming months. These include:
Please allow me to elaborate.
Let me start by discussing what I perceive to be the most important of all of the things I just listed --- People.
The staff at the Commission is terrific, especially my colleagues in the Office of the Chief Accountant; I have enjoyed working with them immensely. Thanks, in large part, to their efforts and abilities, we have been able to meet all the seemingly-impossible rulemaking deadlines imposed under the Sarbanes-Oxley Act.
But, with all the recent changes, the demands on our office have skyrocketed. We must continue to grow to effectively and efficiently meet our responsibilities in areas such as:
Adding more talented people to an already very talented staff will provide us with the means to carry-out these very important responsibilities. And, we are in the process of doing just that. Over the next couple of months, we plan to add several new people to our staff --- eventually resulting in an office that is about double the size it was a year ago.
I am truly excited about this because it is the people that make it all happen!
While I could talk about people all day long, let me shift gears to the status of our rulemaking initiatives.
The Sarbanes-Oxley Act was signed into law by President Bush on July 30, 2002. Since then, the Commission has adopted 11 final rules implementing both the legislative mandates of the Act and, in some cases, additional reforms that the Commission and Commission staff deemed necessary to advance the interests of investors. Those rules relate to:
If you have gotten bogged-down in the pages of rulemaking that the Commission has issued over the past couple of months, let me leave you with this thought: the rules to implement Sarbanes-Oxley are far-reaching, touching all aspects of our capital market system and they make clear that everyone is accountable.
As you may know, we continue to actively work on the final rule implementing Section 404 on internal control reporting and hope to make our recommendation to the Commission soon. After that there are just a few odds and ends with respect to the Sarbanes-Oxley rulemaking initiatives and then, we are essentially done --- at least with phase I --- rule-writing.
Of course, implementation will have to be monitored and, if necessary, interpretative guidance may need to be provided. Further, I believe that the process is iterative and may require a review in 2 or 3 years from now to see how everything is working. Adjustments may have to be made. Regulatory vigilance and flexibility are key to the success of all of these reforms.
But, you also are key to the success of the reforms that are underway! Whether you are in public accounting, a member of corporate America, in academia, or on Wall Street, you have a role to play in restoring investor confidence. The laws and the rules are there, but it is up to you to make them meaningful in the context of how business is conducted. It is no small task, but I am confident that we are all up to it.
Speaking of large tasks. One group of individuals has undertaken an immense and extremely important task in the interest of restoring confidence in the independent audit --- the Public Company Accounting Oversight Board.
As you are probably already aware, William J. McDonough, the current President of the Federal Reserve Bank of New York was selected by the Commission as its nominee for chairman of the Oversight Board. After his formal appointment, it is expected that Mr. McDonough will join his colleagues Kayla Gillan, Dan Goelzer, Bill Gradison, and Charley Niemeier on the Oversight Board.
These individuals have worked tirelessly to get the Oversight Board up-and-running. And, I am pleased to announce that it is. On April 25th, the Commission formally recognized the Oversight Board.
But, let there be no mistake, there are many critical issues that this board still has to wrestle with, including:
I have no doubt in my mind that this Board will tackle these issues in a meaningful manner. The Oversight Board has a distinct advantage over the infrastructure that previously existed in that it is (1) independent in fact and appearance and (2) inspection, discipline and audit standard setting are all in one place.
Those of you who know me, know that I could not conclude any speech without talking about international convergence. It is important and it is upon us.
Prompted by a number of factors, including the intention of the European Union to require the use of International Accounting Standards by 2005 and the "Norwalk Agreement" between the FASB and International Accounting Standards Board, international convergence is occurring.
For example, the issue of reporting financial performance continues to be a major priority on both standard-setters' agendas. And to the extent that we have fair value measurements, standard setters must take the initiative to improve the consistency and quality of valuation guidance.
By the way, the FASB should be congratulated for setting up the first multi-disciplinary valuation issues working group. I am truly encouraged by this step.
Of course, as I have said on many occasions, the standard-setting processes are underway and may be the easiest element of international convergence to make happen. It is the other elements of the global financial reporting infrastructure that need at least equal focus. Those elements include:
The key to developing this global financial reporting infrastructure will require a lot of hard work by all participants in financial reporting - including registrants, auditors and regulators. I encourage you to join in and do your part.
One of my most enjoyable experiences has been chairing IOSCO's Standing Committee No. 1, which seeks to achieve consistent regulation of accounting, auditing, and disclosure matters around the world. During the past year, IOSCO has issued a number of key documents on all of those matters. It will play a critical role in moving global financial reporting to the next level.
Well, that is all. I appreciate having the opportunity to be with you here today. I appreciate the time I have had at the SEC staff and the many people I have met along the way. I will be returning to the private sector soon and look forward to continuing to work with you in that capacity.
Let me leave you with one thought before I turn the podium back over: let's keep this positive momentum alive to further strengthen our capital markets and restore investor confidence. I have no doubt that, by working together, we will advance, and not simply protect, the interests of investors.
Thank you. I will be more than happy to take any questions that you may have during the Q&A Session to follow.
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