VideoApparently, the SEC believes the best way to crack down on accounting fraud is to get someone with no accounting background to ride shotgun over the industry.
On Friday, the regulatory agency elected William Webster to serve as chairman of the new five-member Public Company Accounting Oversight Board (PCAOB).
Webster, 78, is the former head of the FBI and CIA.
He narrowly beat out John Biggs in a 3-2 vote. One wire service described the open meeting of the Commission as "unusually rancorous." Biggs, 66, is retiring as head of New York's TIAA-CREF teachers pension fund.
The PCAOB was created by the Sarbanes-Oxley Act of 2002 and will oversee the audits of public companies through rigorous registration, standard setting, inspection and disciplinary programs. The act requires the Commission to select the members of the board, although it must consult with the Secretary of Treasury and the Chairman of the Federal Reserve Board during the selection process.
During the Friday session, the SEC also selected four other members for the board: pension fund lawyer Kayla Gillan; accountant and former SEC general counsel Daniel Goelzer; former congressman Willis Gradison; and SEC Enforcement Division Chief Accountant Charles Neimeier.
"The individuals selected to serve on the board clearly meet and exceed all the requirements in the act," said SEC Chairman Harvey Pitt. "They are individuals of high integrity and reputation who have demonstrated a commitment to serving the interests of investors, and they understand the financial reporting process. They are each committed to meaningful reform. In addition, they bring to the Board a combination of investor advocacy, regulatory and legal experience."
Well, not in Webster's case. But Goelzer served as the general counsel of the SEC for more than seven years. "During his tenure, Goelzer represented the SEC and the interests of investors through the performance of duties in the areas of appellate litigation, rulemaking, and regulation of the securities markets," the SEC noted. He is a CPA and is the author of several articles on matters related to corporate governance and the securities laws. Early in his career, Goelzer was a member of the audit staff of Touche Ross & Co. His term at the PCAOB expires in 2006.
Gillan recently became the vice president of independent fiduciary services at the California Public Employees' Retirement System (CalPERS). She had previously served six years as the chief legal adviser to CalPERS and to the fund's 13-member board of trustees. Gillian also drafted CalPERS' U.S. corporate governance core policies and guidelines. Her term expires in 2005.
Gradison is a former nine-term Congressman from Ohio. While in Congress, he served as the ranking member of the House Budget Committee and as the ranking member on the Health Subcommittee of the House Ways and Means Committee. He currently is the senior public policy counselor at Patton Boggs. His term expires in 2004.
Niemeier is the chief accountant in the Commission's Division of Enforcement and co-chairman of the Commission's Financial Fraud Task Force. In these roles, he coordinates, monitors and advises the division staff as they conduct accounting and financial reporting investigations and initiate enforcement and disciplinary proceedings.
Under Niemeier's aegis, the Commission last year brought a record 160 financial fraud, reporting, and accounting cases, including cases involving misleading earnings press releases and misleading disclosures in the management discussion and analysis (MD&A) sections of corporate reports. His term expires in 2003.
Report: SEC to Propose New "Pro forma" Rules
Now that PCAOB is staffed, this week the SEC is reportedly planning to unveil new proposals regarding the reporting of pro forma results.
According to Reuters, the SEC's proposal will require that companies present conventional net profit figures at least as prominently as pro forma numbers when issuing earnings statements.
"The importance of this will be to give guidance to companies who have not been sure today how much pro forma information to use," said Brian Lane, a former head of the SEC's division of corporate finance and currently a partner at law firm Gibson, Dunn & Crutcher, in the Reuters article. "And how best to present it and to have some insight into what the SEC is thinking."
Earlier this month, The National Investor Relations Institute (NIRI) adopted a tough set of guidelines for companies when they report earnings, including more forthcoming reporting of pro forma results. The guidelines arose from a 10-point program NIRI announced back in April as a way of helping to restore investor trust and confidence.
About 46 percent of companies responding to a NIRI poll back in August said they presented pro forma information in the second quarter this year, down from 52 percent in the fourth quarter last year.
Under the Sarbanes-Oxley bill, the SEC must establish a rule that requires companies to provide information reconciling pro forma earnings figures to generally accepted accounting principles (GAAP).
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