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What the SEC's New Chief Accountant Needs to Worry About


by Edith Orenstein

The new top accountant at the top U.S. securities regulator will face some serious policy decisions that could become financial executive game changers for years to come.

The announcement earlier today by the U.S. Securities and Exchange Commission that James (Jim) Schnurr has been appointed as the new Chief Accountant critical juncture for the U.S.as regulator continues to deal with the fallout of the 2008 credit crisis as well as a string of outstanding issues, such as accounting convergence and the rise of cybercrime.

Schnurr joins the SEC and takes on the accounting reigns as the regulator continues to struggle with complex financial crisis enforcement cases -- such as the Bank of America case settled last week – that are still in process of being fleshed out.

Further, there is some uncertainty in some corners as to which way the SEC may turn on how to treat the use of International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB) in the U.S.; that is, by U.S. registrants. And, there are always a myriad of registrant issues and ongoing oversight of U.S. Financial Accounting Standards Board (FASB) standard-setting matters as it winds down the convergence agenda and moves on its own projects.

This includes the implementation of the revenue recognition standard, completion of the leases standard and financial instruments and credit loss standards. This year's implementation of the Committee of Sponsoring Organizations of the Treadway Commission (COSO's) updated Internal Control - Integrated Framework for the first time as of Dec. 15, 2014 is another major item companies are dealing with and the SEC will be watching.

Additionally, Dodd–Frank Wall Street Reform and Consumer Protection Act rulemaking continues, along with matters on the docket for tomorrow’s SEC open meeting,  such as a more detailed asset-by-asset disclosures for pools of Asset Backed Securities (ABS) and rulemaking relating to derivatives and credit rating agencies. The SEC Chairman, along with the Director of the Division of Corporation Finance, have also emphasized they want to see action on the SEC's Disclosure Initiative, which will undoubtedly involve the Chief Accountant as well, and the issue of Cybersecurity .Although this  not directly an "accounting or disclosure" issue per se – it definitely has disclosure implications.

The New Chief Accountant

Schnurr, who recently retired as Vice Chairman and Senior Professional Practice Director of Deloitte LLP, will officially start with the SEC in October. According to the SEC’s announcement of Schnurr’s selection  issued earlier today, Schnurr’s career with Deloitte ( stretching  close to four decades ) includes serving as senior partner overseeing the firm’s  policy for SEC and financial reporting, as well as serving as a senior partner for mergers and acquisition services, deputy managing partner for professional practice, including responsibility for quality control and risk management of audit and advisory services. Schnurr’s high level of responsibility for technical activities at his firm led to his becoming very familiar with  - as they did with him - various regulatory and standard-setting bodies, including through his services as a member of advisory groups of the Financial Accounting Standards Board (FASB), the Public Company Accounting Oversight Board Standards Advisory Group (SAG), and various advisory groups and committees of the American Institute of Certified Public Accountants (AICPA).

In a statement included in the SEC’s announcement, SEC Chairman Mary Jo White emphasized, “Jim’s broad expertise in accounting, reporting, and risk management will help foster investor confidence by holding companies accountable for their financial reporting requirements.”

Former Chief Accountants Comment

Reaching out to a number of former SEC Chief Accountants for input on the appointment of Schnurr as the next in a long line of successors in what must be one of the toughest jobs on the planet, I received feedback from a number of them. Former SEC Chief Accountant Don Nicolaisen, who served under former SEC Chairman William Donaldson, and co-chaired the U.S. Treasury’s Advisory Committee on the Audit Profession, praised Schnurr’s appointment as Chief Accountant, saying, “Jim is an excellent choice. He brings an exceptional balance of experience, sound judgment and common sense to the role. I'm very pleased that he has committed to the challenges ahead.”

Lynn E. Turner’s take on the matter, perhaps not unsurprisingly given Turner’s legacy as Chief Accountant during then-Chairman Arthur Levitt, Jr.’s tenure, and considering his outspoken point of view on various PCAOB advisory committees including the SAG and the Investor Advisory Group, was that, “[Schnurr's appointment] continues the Big 4 "capture" of the office.

I believe that Chairman White's statement about leveraging Schnurr's expertise to "hol[d] companies accountable for their financial reporting requirements" is something that observers will be watching for, in addition to Schnurr's participation on SEC rulemaking initiatives and FASB and PCAOB oversight (and perhaps, indirectly, IASB oversight or IOSCO/ IFRS Monitoring Board related) oversight initiatives.

Industry Groups, Standard Setters Praise Appointment  

Among the first of the industry groups and standard-setters to release congratulatory statements were Financial Executives International (FEI) President and CEO Marie N. Hollein, who stated, "Mr. Schnurr’s distinguished career in audit and related services, as well as his technical and leadership skills will be of great benefit to all of the SEC’s constituents," adding, "We look forward to working with him in his new role and providing support for the SEC...We also thank the current Chief Accountant Paul Beswick for his service and look forward to working with him and his team through the transition.”  Financial  Accounting Foundation (FAF) President and CEO Terri Polley  (the FAF oversees the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board or GASB) who praised how, "During the course of his distinguished career, [Schnurr]  has demonstrated a commitment to interpret and apply standards in a manner that promotes the transparency, quality and usefulness of financial reporting," and Cindy Fornelli, Executive Director of the Center for Audit Quality (CAQ),  who noted, "The CAQ welcomes the opportunity to work with Jim to help ensure that companies are providing accurate and complete financial information that is so critical to the effective functioning of our capital markets."

Taking on a Tough Job, at a Tough Time

In my view, it will be interesting to see how Schnurr, whose experience runs extremely broad and deep, may be integrated directly – or indirectly – with the SEC Enforcement Division’s Financial Reporting and Audit Task Force. I have noted from time to time that being a standard setter or regulator must be one of the toughest jobs in the world.