SEC names acting chief accountant

Strategic Finance, Dec, 2002 by Kathy Williams

JACKSON M. DAY, CO-DEPUTY CHIEF ACCOUNTANT, HAS BEEN NAMED ACTING chief accountant of the Securities & Exchange Commission (SEC). Day has served as deputy chief accountant since September 15, 2000. Before joining the SEC's staff, he was a partner in Ernst & Young's national office of professional practice in New York.

Robert Herdman, former chief accountant, resigned last month after SEC Chairman Harvey L. Pitt resigned. Both were embroiled in the controversy surrounding the appointment of William Webster to head the new Public Company Accounting Oversight Board. Webster then resigned his new post because of the controversy.

Global Accounting Standards at Last?

In late October, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a "memorandum of understanding," which marks a significant step toward formalizing their commitment to the convergence of U.S. and international accounting standards. The two Boards say they are committed to developing high-quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting.

Both groups added a short-term convergence project to their active agendas that will require them to use their "best efforts to propose changes to U.S. and international accounting standards that reflect common solutions to certain specifically identified differences." They expect to issue an Exposure Draft to address some, and maybe all, of those differences by the latter part of 2003. The IASB is planning to implement International Financial Reporting Standards in some jurisdictions on or before January 1, 2005, so the two Boards want to work on joint requirements before then.

Rules vs. Principles

Also in late October, the FASB published a proposal to adopt a principles-based approach to accounting standard setting that it hopes would improve the quality and transparency of financial accounting and reporting. Because the approach would involve changes in the processes and behaviors of all participants in the U.S. financial accounting and reporting process, the Board says it wants more information before it proceeds and is requesting comments from the public.

The proposal goes hand-in-hand with the Sarbanes-Oxley Act, which requires the SEC to investigate the feasibility of implementing a principles-based approach to accounting. Given the accounting scandals and other chaos in the profession in the last year or so, many people have raised concerns that accounting standards are too complex and difficult to apply and that the current rules-based standards allow financial professionals to structure transactions "around" the rules.

The proposal (file reference 1125-001) can be downloaded from the FASB website at www.fasb.org. The Board plans to hold a public roundtable discussion on December 16, and public comments are due by January 3, 2003, to director@fasb.org.

Stock Ownership

When they compared median annualized total shareholder return at the 200 largest U.S. industrial and service companies over the past five years, they found that companies without guidelines consistently outperformed those with formal guidelines at one-, three-, and five-year intervals. Companies with informal guidelines had the lowest shareholder returns for the one-year period ending December 31, 2001. They fell in the middle of the three groups after three years and had the highest return after five years.

Contrary to widespread belief by corporate governance experts, stock ownership guidelines for senior executives don't necessarily translate into superior shareholder returns. That's what executive compensation consultants Pearl Meyer & Partners found recently.