Former SEC Chief Accountant Talks Tough, Makes Recommendations for Restoring Investor Confidence

By Jay Dismukes

Former SEC Chief Accountant Lynn E. Turner chats following his presentation, "A Test of Trust."

Despite the fundamental integrity of the vast majority of CPAs in the workplace, the public’s perception

that the accounting profession may have lost its ethical compass has become the hard and fast reality, a former top official of the Securities and Exchange Commission said last month.

Speaking before approximately 150 members of the
New York State Society of CPAs in mid October, former SEC Chief Accountant Lynn E. Turner said the accounting profession has lost the confidence of most of the investing public following 12 months of financial reporting scandals. To restore the profession’s trusted relationship with the American public and provide the products and services that he feels the public is demanding, the profession must be willing to embrace and implement change, Turner said.

“All potential alternatives must be considered, not just those that are comfortable for us as accountants,” Turner told the attendees of a Woodbury, N.Y., dinner jointly sponsored by the Nassau and Suffolk chapters. “In the end, we must deliver a high quality product that will meet or exceed, in every way, the public’s expectations.”

During his speech titled, “A Test of Trust,” Turner pulled no punches and spared few for the problems that he believes currently plague the accounting profession.

Turner singled out the American Institute of CPAs for allegedly doing one thing and saying the other. In particular, he criticized the AICPA for supposedly lobbying against the selection of TIAA-CREF pension fund chief John H. Biggs to head the new Public Company Accounting Oversight Board established under the Sarbanes-Oxley Act.

“If the leadership of the accounting firms and the AICPA are serious about reforms, they will publicly support members for the new board who have clearly demonstrated their service to investors and the public, who are knowledgeable about financial reporting as well as the obligations of auditors,” Turner said. “The leadership of the profession should publicly support a reform-minded board rather than continuing to remain silent except in the hallways of the capitals.”

Though he might step down pending an ongoing investigation, ex-FBI chief William Webster edged out Biggs on Oct. 24 in a 3-2 vote of the SEC. The Commission also voted in four other members of the PCAOB.

Turner further chastised the AICPA leadership for its apparent disconnect with the membership, citing the heavily opposed and ultimately defeated proposed global credential initiative known as XYZ and alleged conflict-of-interest involvement with the for-profit venture CPA2Biz.

In addition to questioning the direction and objectives of the AICPA leadership, Turner also encouraged the attendees to consider taking other steps. Among those, he suggested that auditors expand their assurance duties as well as their reports to be more specific as to whether financial statements accurately reflect the financial condition and earnings of a company.

To continue to improve transparency, investors, Turner said, should be provided with a grade on the quality of the accounting principles being used by a company being audited as well as its disclosures. To realize these steps, Turner said it will be necessary to increase audit fees, which ultimately would come from the pockets of the shareholders, but given the events of the past year, the increase would be supported by company investors.

Fixing the profession’s relationship with the public will also require across-the board quarterly financial reports to shareholders and a closer look at audit committee members, noted Turner.

“Perhaps it is time that we do have some turnover with respect to audit committee members who are not sufficiently financially literate,” Turner said. “I think it is time we find qualified candidates for the audit committees such as retired CFOs and CPAs who also are knowledgeable about the business operations and industry.”

According to Mark A. Cirelli, co-chair of the Suffolk Chapter’s Cooperation with Bankers and Other Credit Grantors Committee, which organized the event, Turner’s presentation was “riveting” and the feedback on it was positive.

“People want the profession to have its good name back and are interested in this kind of thing,” Cirelli said. “He (Turner) is recognized as a leader, and in this day and age, we are looking for leadership.”