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SEC Official Behind 1,000 Restatements Has Unusual Title: Acting

May 9, 2022, 8:45 AM

Paul Munter has been acting chief accountant to the SEC for the past year, but that temporary post hasn’t stopped him from pursuing arguably the most aggressive agenda in decades of U.S. corporate accounting and auditing oversight—leaving an enduring mark on financial reporting.

Munter so far has provided the first concrete guidance on how to account for digital assets and pushed for investor-focused accounting standards. He warned audit firms about threats to their independence. And barely three months into the job, he issued accounting guidance for special purpose acquisition companies that ground the SPAC boom to a halt.

“He had the interpretation that launched a thousand restatements,” said Jack Ciesielski, an accounting analyst. “He’s responding to what’s out there.”

The chief accountant position at the Securities and Exchange Commission plays a key role in steering companies on how to apply accounting rules while also overseeing the work of two independent audit and accounting standard-setters.

“It’s the most important, highest profile accounting job in the world,” said Dennis Beresford, former chair of the Financial Accounting Standards Board, one of the two independent bodies the SEC oversees. Few people are qualified for it, he said, and those who are—qualified academics or audit firm partners—may not want to leave hard-won positions to take a government job.

The top accounting post at the Wall Street regulator remains one of only a few senior staff positions still awaiting a permanent leader since Chair Gary Gensler joined the commission in April 2021.

Since taking on his acting role in February 2021, Munter has served what amounts to a 14-month audition for the permanent post. It isn’t clear how much longer he might stand in or when Gensler might fill the role. The SEC declined to comment about personnel decisions and declined to make Munter available for an interview.

But he shared how he thinks about his role, in public remarks last week to the Baruch College financial reporting conference, noting the office’s priorities are “anchored” to the commission’s agenda.

“From the time I get up in the morning til the time I go to bed at night, I’m trying to think about what are things that we can do to improve the decision usefulness of information that investors are receiving,” Munter said.

Diverse Experience

Munter joined the Office of the Chief Accountant in 2019 from KPMG LLP, where he was a partner in the firm’s national office. But he’s known primarily as an academic, previously chairing the accounting department at the University of Miami in the 1990s and more recently teaching at the University of Colorado, according to his LinkedIn profile. Until taking on the acting chief accountant role, he ran point on the commission’s international accounting work.

“He’s a real departure from the chief accountants that we’ve had in the last 10 years perhaps. And I think it’s for the better,” Ciesielski said.

Past chief accountants typically hailed from the largest public accounting firms, like KPMG. Few came from academia.

John C. “Sandy” Burton, the late Columbia Business School professor and dean, is remembered as the last academic to fill the role—and that was in the 1970s. He pushed companies to report on current market values versus historical costs, amid rampant inflation in that decade.

Munter’s active agenda reflects Gensler’s priorities and falls midway between Burton’s “revolutionary” tenure and that of typical chief accountants, many of whom were “placeholders,” said Tom Selling, a consultant and former academic fellow in the Office of the Chief Accountant.

“I think the chair, Gensler, is doing Munter a disservice by having him serve as acting chief accountant for a full year,” Selling said. “He’s as qualified as anybody else to be the chief accountant.”

Still, Munter carries the same authority as a permanent appointee, and has issued guidance through statements and speeches that have already reshaped practice.

“Particularly given his background, given his scholarship and his work at a very large accounting firm, I don’t think the fact that he has ‘acting’ behind his name matters,” said Sarah Williams, assistant law professor at Penn State University, who has worked for various financial regulators, including the SEC and the Public Company Accounting Oversight Board.

The Activist

Munter’s hands-on oversight of corporate accounting has met resistance, including from one of his bosses.

Commissioner Hester Peirce, the SEC’s lone Republican and a vocal critic of Gensler’s policies, called the SEC’s approach to crypto accounting “scattershot” and questioned why the commission would provide such specific instructions for a “very limited number” of companies without giving them a chance to weigh in first.

SPAC sponsors and their advisers have questioned how repeated mass restatements to correct technical accounting errors helped investors. An April 2021 statements from Munter triggered a crush of paperwork for the blank check companies and chilled the hot SPAC market.

Munter has pushed back against some of the criticisms, saying claims that investors don’t care about accounting errors wasn’t a valid reason to fix those mistakes quietly without fully restating results. Sticking with his position, he later suggested that auditors and their corporate clients were biased in how they handle restatements.

Audit firms weren’t left off Munter’s already full agenda and were rebuked for their ballooning consulting arms. He warned that those lucrative practices could threaten firms’ ability to provide independent audits.

Munter likely played a key role shepherding rules needed to implement a 2020 law targeting the audits of Chinese companies. That was no small feat, after Gensler’s overhaul of the Public Company Accounting Oversight Board’s leadership left it short of members and without a permanent chair, Williams said.

“He stepped into that breach to make sure the PCAOB continued to do what it needed to do from a standard-setting standpoint and yet still work in close coordination with the SEC,” she said.

He also had a hand in advising the commission as it crafted climate disclosures rules, which would require companies to detail the financial impact of extreme weather events or capital investments. Munter last week defended the SEC’s proposal that calls for climate-related accounting footnotes, saying the commission has for decades set policy on the form and content of the financial statements, and that the rules would rely on on existing accounting standards. The proposal also calls for certain greenhouse gas emission information to be audited.

Munter also admonished the independent accounting standard-setter, the FASB, urging it to prioritize projects that would benefit investors, in a public statement that also urged the FASB to get to work on climate and digital asset rules. Within weeks of calling the FASB to task, Munter’s office released a staff bulletin that said certain customer-held cryptocurrencies should be reported on corporate balance sheets.

The crypto guidance was an example of how aggressive Munter can be, both overseeing the FASB and responding to market demands, Selling said. “You can’t take 10 years to decide how crypto should be accounted for.”

To contact the reporter on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Kathy Larsen at klarsen@bloombergtax.com