Niemeier: Next SEC Chief Accountant?

PCAOB member Charles Niemeier has said he wants to fight the “good fight,” and he may get a chance to do just that as the SEC’s next chief accountant. Bloomberg News reported today that SEC Chairman Mary Schapiro could pick mark-to-market fan Niemeier for the chief accountant post.

What would that mean for the direction of the SEC? Niemeier is pro fair value and against former SEC chair Christopher Cox’s proposed timetable for conversion to IFRS. He’s firmly opposed to the rapid deregulation that he believes IFRS conversion would bring.

During an interview with the CPA Journal, Niemeier shared thoughts on everything from IFRS to auditors’ role in the current crisis.

Niemeier equated a transition to IFRS with deregulation, saying adoption of IFRS was an outgrowth of a push to deregulate to enhance U.S. competitiveness. “Deregulation has caused much of the chaos that we find ourselves in today,” Niemeier said.

Niemeier expanded on the link between conversion to IFRS and deregulation during a keynote address at the NYSSCPA 2008 Sarbanes-Oxley, SEC and PCAOB Conference. (Download a PDF of the full text of his remarks below.) “The current IFRS initiative would delink us from our regulatory model, not only by lessening our standards to allow more manager discretion, but also by weakening enforcement. Expressly allowing interpretive discretion weakens the enforceability of a standard … The SEC’s commitment to enforcement, and the development of enforceable standards, is key to preserving investor protection, as well as the low cost of capital that results from robust investor protection,” Niemeier said.

“We are different from other countries in that more than half of our population is invested in the stock market. No other country even comes close to that level of participation,” Niemeier told the CPA Journal.

Auditors: What Share of the Blame?
Asked what role independent auditors of failed financial institutions have in the current crisis, Niemeier told the CPA Journal, “I think we are going to find that consolidation and off-balance sheet accounting was a big contributor. All these activities were allowed to take place. That put a lot of pressure on accounting professionals to make sure that the financial statements were presented fairly. It doesn’t mean that the auditors didn’t do things for which they should be held accountable. There is plenty of blame to go around.

“The auditing profession doesn’t always seem to acknowledge a problem, even when they know it’s there. Someone has to force that to happen, whether it’s the PCAOB or another entity … The profession has to stand up and take the lead because, if it doesn’t, it faces the risk of becoming irrelevant.”

But auditors don’t shoulder all the blame, nor should we scapegoat fair value accounting, according to Niemeier. “In the end, it is the risky activities and the lack of market liquidity that led to these problems … Blaming fair value for our current problems is like blaming your doctor when he tells you that you are sick.”

Niemeier disagrees with the proposed PCAOB policy that would allow the board to place “full reliance” on inspections by non-U.S. oversight bodies that met certain criteria. “I dissented from the proposal,” Niemeier said. “Among other reasons, few if any countries spend as much on—or devote as much intensity of effort to—enforcement of financial reporting and auditing as the U.S. does,” Niemeier said during the NYSSCPA conference. “It’s not realistic to think that non-U.S. authorities will have the ability or inclination to enforce such U.S. requirements” such as the internal control audit and touch auditor inspection rules. 

Two fans spoke out in favor of Niemeier as a possible SEC pick: bloggers Tom Selling of the Accounting Onion and Professor David Albrecht of the Summa. "I dig what he preaches," said Selling. "If Schapiro does eventually make Niemeier the Chief Accountant, the likelihood of IFRS adoption, even in the eyes of its most ardent supporters, will have slid from 'inevitable' to 'over my dead body.'"