SEC’s Piwowar Calls for CPA Commissioner, Focus on Materiality

Securities and Exchange Commissioner Michael Piwowar argued Monday the biggest structural issue facing the securities regulator is that he is the “the only non-lawyer on the Commission” and that a CPA should be sitting on the five-member panel.

“I had a meeting with the accountants in our enforcement division, and they asked me what would be optimal makeup,” Piwowar recounted during his keynote discussion at FEI’s Current Financial Reporting Issues Conference (CFRI) in New York this week. “I said ‘that's easy: three economists and two accountants.’”

The commission structure faces a significant change, with the October departure of Commissioner Daniel Gallagher and Commissioner Luis Aguilar's plans to leave the agency in December.

“President Obama has nominated two outstanding individuals as their replacements – both of whom are also attorneys – and I look forward to working with them.” Piwowar said.  “Perhaps in the not-too-distant future, we will see a certified public accountant (CPA) named as a commissioner."

Piwowar -- a Ph.D.-- said that his experience as an economist and academic has allowed him to approach issues from a unique angle and that a CPA-commissioner is a logical choice for SEC.

“It would be great to have some accountant to ask some probing questions. As an economist, I think a little bit differently than a lawyer on the commission. That scares some people, and it allows me to ask a lot of people some probing questions,” Piwowar explained. "That makes regulators a little bit uncomfortable. And a comfortable regulator is dangerous regulator.”


Also during his CFRI address, Piwowar called for his fellow SEC commissioners to refocus efforts on financial statement disclosures with an emphasis on being discerning about the “materiality” of the information.


In 2014, the SEC’s Division of Corporation Finance began a review of the disclosure requirements in Regulation S-K and Regulation S-X, which regulates financial statements disclosures, with an eye toward eliminating “duplicative disclosures while continuing to provide material information.”

Commissioner Piwowar, however, said that despite the efforts to streamline disclosure, several  “special interests” have been pushing for various new disclosures that may offer more distraction than information.

Unfortunately, the disclosure regime of the federal securities laws has been hijacked in recent years by various special interests.  Let’s be clear, publicly-traded companies are already required to disclose all material information.” Piwowar said.  “If any information that is not material is required to be disclosed under our rules and regulations, then that should raise serious questions as to what is driving the disclosure.”

In response to an audience question, he added that while many blame the Dodd-Frank Wall Street Reform and Consumer Protection Act for adding possible non-material disclosure to the financial statement such as exposure to “conflict minerals,” additional and costly disclosure initiatives are constantly being pushed by Congressional lawmakers.

“Dodd-Frank wasn't the original sin in this area. There has been a number of areas where Congress has been mandating that the SEC mandate and require disclosure for public companies for reasons other than providing material information to investors.” he said. “Putting SEC at the forefront of that enforcement is corrupting our mission.”