Securities and Exchange Commission chairman Mary Schapiro has chosen one of the regulator’s insiders to lead the office that drives the financial-reporting policies for U.S. publicly traded companies.
Schapiro named James Kroeker, a two-year SEC veteran, as chief accountant on Tuesday. He has been temporarily filling the position since January, when then–SEC chairman Christopher Cox put him in the role following the resignation of Conrad Hewitt. Kroeker will oversee accounting interpretations, auditing issues, and international accounting matters.
Since she took over the reputation-tarnished agency, Schapiro has turned to outside sources to fill its top ranks with people who did not work under her predecessor. For instance, earlier this year she named WilmerHale LLP attorney Meredith Cross as director of the SEC’s corporation finance division and former federal prosecutor Robert Khuzami to head its enforcement division.
Kroeker gained prominence in recent months as a defender of fair-value accounting rules during several congressional hearings exploring whether the rules exacerbated the financial downturn. In his testimonies, Kroeker — who in December wrote a 211-page congressionally mandated report aimed at dissuading lawmakers from interfering with the Financial Accounting Standards Board’s fair-value rules — touted the merits of applying fair value, but also recognized that the existing rules aren’t perfect. “Accounting did not cause this crisis and accounting will not end it, but accounting should not make it worse,” he said during a House Financial Services subcommittee hearing earlier this year.
Kroeker’s appointment should be “seamless” within the SEC as no transition is necessary, says Zoe-Vonna Palmrose, who worked with Kroeker for more than a year as deputy chief accountant for professional practice and is now an accounting professor at the University of Southern California Marshal School of Business. Palmrose told CFO.com that Kroeker has proven he can work well with, and has the respect of, the many parties a chief accountant must deal with, including the commissioners, U.S. and international standard-setters, the Public Company Accounting Oversight Board, and Congress.
Kroeker joined the SEC in February 2007 as deputy chief accountant, responsible for accounting issues, from Deloitte & Touche, where he had been a partner. At the SEC, Kroeker has been working on improving financial reporting and trying to cut through the complexity of financial disclosure. For instance, last year, he drove the effort to improve off-balance-sheet accounting guidelines and provided oversight of the Advisory Committee on Improvements to Financial Reporting (CIFR), which had one year to come up with recommendations for simplifying how companies put together their financial results.
“He has led the commission on the accounting side throughout the entire crisis,” notes John White, who left the SEC as director of corporation finance last year and is now working at the law firm Cravath, Swaine & Moore.
In a statement released by the SEC Tuesday, Kroeker says the crisis “highlighted once again the importance of transparency and high-quality financial reporting to investors.” Earlier this year, he indicated the regulator will pay particular attention to the accounting treatment for loss reserves, as well as for off-balance-sheet items, in the coming months.
Other, less-pressing, matters are likely lower on Kroeker’s to-do list (the SEC did not respond to CFO.com’s request for an interview with him as of press time). For instance, when the financial crisis hit last fall, hammering the SEC’s reputation, the 170-page CIFR report was shoved lower down in the commission’s priority pile.
However, Schapiro has indicated the SEC may tackle some of the suggestions later this year. “We have focused our efforts on matters directly related to the economic crisis, financial regulatory reform, and improvements to the agency’s processes and programs, and we expect to continue to do so in the coming months,” she wrote last month in a letter to CIFR chairman Robert Pozen, who also chairs MFS Investment Management.
While some of the CIFR’s recommendations were in process and have been completed, such as the issuance of guidance for the use of corporate Websites, the meatier issues have yet to be addressed. Those suggestions included having the SEC develop a policy statement on the reasonableness of judgment, in order to reduce second-guessing among companies, regulators, and auditors. The CIFR also recommended that the commission issue additional guidance on how companies should view materiality when considering a financial restatement.
Another stale agenda item concerns international financial-reporting standards. Last summer, under Cox, the SEC proposed a time line for eventually moving all U.S. publicly traded companies to IFRS by 2016. Many of the nearly 40 finance executives who responded to the proposal asked the commission to shelve the project and wait for the U.S. and international standard-setters to converge their rules.
While Kroeker has not publicly shared his views on the plan itself, Schapiro has said she “will not be bound by the existing roadmap” and expressed reservations about the quality of IFRS and the independence of its standard-setters.
As a practical matter, considering the time that has gone by and the change in SEC priorities because of the financial crisis, the timetable outlined in the IFRS roadmap will mostly likely shift, says White.