Fear and Misunderstanding of the SEC

When Carol Stacey was a chief accountant at the Securities and Exchange Commission, part of her job was educating companies on how to comply with the regulator's rules. Problem was, some people have what she considers an undue fear of calling the SEC staff.

" I think there are misconceptions about how exactly the SEC operates, especially in terms of its review staff."

- Carol Stacey, the SEC Institute

In fact, she tested this theory at a recent conference in her new role as a vice president at the SEC Institute, a 24-year-old, self-funded group that is unaffiliated with the commission. A continuing-education organization, the institute each year conducts 150 workshops and conferences aimed at CFOs and their staffs, along with general counsels and audit firms, focusing on how public companies can best meet SEC filing requirements.

During one institute session about the internal-control provision of the Sarbanes-Oxley Act, Stacey asked how many people would call the SEC if they had questions. Hardly anyone raised a hand. But when asked who would be willing to call her — a personable professional who spent more than 11 years at the SEC, the last five as the chief accountant for the Division of Corporation Finance — three-quarters of the room answered in the affirmative.

In an interview with CFO.com, Stacey laughed about the thought that her former coworkers will receive more phone calls because she'll be traveling around the country encouraging CFOs and their staff to call the SEC as they prepare their filings. But she takes the matter seriously. "The staff is there to help," she says. "I think a lot of people have realized over the last few years that it's better to get things right before you send it in."

Stacey also talked about other misperceptions that corporations have of the SEC, as well as the many issues facing the commission, such as pressure to define materiality and deal with the widespread use of International Financial Reporting Standards outside the United States.

What will you be covering over the next year?
The SEC Institute has created all sorts of workshops for specific topics. The new management guidance for Section 404 will definitely be one. We cover everything from basic financial reporting to FAS 133, which is accounting for derivatives and hedging. We're also creating workshop on business combinations and fair value. From feedback we've gotten, it's pretty clear people need more guidance on fair value. It's also an area that I want to understand better because valuation standards are fairly nonexistent. When I talk about standards, there are all sorts of methodologies, and I think that's where we need to concentrate on, make sure we understand them and if they're appropriate to what we're trying to value.

As the Financial Accounting Standards Board and the International Accounting Standards Board work on converging their standards, and the SEC toys with the idea of giving U.S. companies the choice between IFRS and U.S. GAAP, could we see huge changes in accounting in the near future?
As far as international convergence, we all have to keep a close eye on that. But I don't know whether there are going to be dramatic changes or not. For the most part, the companies that are interested in adopting IFRS — on the U.S. side at least — have overseas subsidiaries that already use IFRS, or they may be smaller companies whose competitors use it. From the U.S. side, the population that's going to adopt IFRS is probably going to be fairly limited. However, as we move toward a global set of standards, there are a lot of people who need to get up to speed on what's happening.

Has that education already begun?
The student population has very limited exposure to IFRS. When I did my master's degree about 12 years ago, I had one class on international accounting and it was just a basic overview. Academia needs to get ready for that, as well as the audit community. There are a lot of auditors at the Big Four well-versed in IFRS, but not all of the line partners are ready for it, never mind the staff. The companies that want to adopt it are well underway in understanding IFRS.

At the SEC Institute, we haven't yet started offering conferences on IFRS. Most of the workshops I've seen have been overseas; they haven't really started yet in the U.S. markets. We'll see when we start offering those — I don't think it's a matter of if.

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