Wanted: A financial reporting visionary to fill one of the highest-profile accounting jobs in the world. Tasked with ensuring the smooth, on-time, rollout of a controversial accounting change for banks and the biggest change for auditor’s reports in decades.
The Securities and Exchange Commission announced last week that chief accountant Wes Bricker was stepping down after navigating a three-year period of transformation in the accounting and auditing profession.
Bricker supervised the implementation of two historic accounting standards and preparations for a third. And he oversaw the Public Company Accounting Oversight Board as it transitioned to new leadership after all five members of the audit regulator were replaced in 2017.
The post serves an important role in a profession that shares power across the industry, independent standard-setters, and the government, said Heidi Bartholomew, a controller and financial reporting veteran of FedEx Ground, a division of FedEx Corp., who now teaches at the University of Pittsburgh.
“The person who sits in that chair at the SEC by definition just has to be one of the most important accountants, not just in the country,” she said. “The rest of the world looks to us.”
In the pressure-cooker environment of Washington, it’s not unusual for government leaders to step down after two or three years. For Bricker to serve six years, including his tenure as deputy chief accountant and an accounting fellow, is a feat, Bartholomew said.
“He’s written his ticket to the accounting grand hall of fame now. He can do whatever he wants,” Bartholomew said.
Someone with Bricker’s experience could land at a Big Four accounting firm, a corporation, or academia, she said.
Bricker told Bloomberg Tax he couldn’t say yet where he was headed next and didn’t comment further.
The SEC named Sagar Teotia as acting chief—an appointment typically made to ensure that someone leads the office while the commission searches for a successor. It hasn’t disclosed a timetable or the parameters of its search.
Challenges Ahead: CECL, CAMs
The next chief accountant will be tasked with enforcing the revenue recognition and leasing standards, and helping to clarify the SEC’s enforcement focus, said Scott Taub, who twice served as acting chief accountant.
“The challenge of managing change in accounting standards will probably be lower for the next chief accountant than it was for Wes because there will be less change to manage,” Taub said.
Still, the next chief accountant will oversee the rollout of a controversial accounting change in how banks and insurers calculate estimated losses on loans and other financial instruments, said Jack Ciesielski, an independent accounting analyst.
The banking industry and members of Congress have repeatedly sought to delay the the 2020 effective date.
A major change in audit standards also awaits Bricker’s successor. Annual financial statements will include an extended audit report detailing critical matters that were complex and subjective beginning this summer.
But ensuring that the new communications, known as critical audit matters, or CAMS, will be meaningful and not become boilerplate will require regular reminders and coaxing from the SEC, Ciesielski said.
Whether the PCAOB makes good on pledges to change how the regulator operates remains an open question for the next chief accountant, Ciesielski said.
Managing change at the PCAOB will require it to coordinate with the SEC to turn those promises into concrete reforms, said Taub, who has returned to the private sector and is now managing director of Financial Reporting Advisors LLC.
Under new leadership, the board had pledged to revise its inspection process, to respond more quickly, and to be more transparent. A year-and-a-half later, the board has filled key leadership positions, has made some tweaks to its inspection process, and is focused on implementing the changes in the auditor’s report.
Tom Selling, a writer, consultant and semi-retired professor, hopes the SEC chooses someone with a vision to make generally accepted accounting principles more relevant to investors and potentially curb their reliance on non-GAAP metrics.
“It’s the Wild West out there,” he said of the proliferation of adjusted ratios and metrics that drive investment decisions. He suggested the SEC’s approach to allow the use of non-GAAP metrics, with certain limitations, isn’t working.
“Can we make GAAP better or should we contain non-GAAP?” Selling said.
“Maybe we need to think more out-of-the-box about what GAAP measures would trump this,” he said.
New Standards, Audit Governance
Bricker played an important role in helping the Financial Accounting Standards Board implement and resolve implementation issues with major new accounting standards, said Thomas Linsmeier, a former FASB member and now a professor at the University of Wisconsin-Madison.
Those rules overhauled revenue recognition and lease reporting, which have shifted earnings and exposed trillions of dollars in long-term obligations. Preparing for the two back-to-back changes took companies and their auditors years of work.
But Bricker deserves credit for making sure the rules were implemented and delivered to investors on time, Ciesielski said.
He left his mark on the auditing profession as well, most notably by encouraging the largest accounting firms to add independent and external members to their governing structure, said Claudius Modesti, who served as the PCAOB’s first enforcement director.
Bricker publicly admonished the firms to do more to earn the trust of investors. The rebuke came a few months after six former KPMG LLP and PCAOB staffers were charged in federal court for their role in a plot to cheat on the firm’s annual regulatory inspection.
But he also recognized that auditors—and audit committees—play as important a role in the financial reporting ecosystem as investors and public companies. And he supported the PCAOB’s efforts to seek input from auditors, said Cindy Fornelli, the former executive director of the Center for Audit Quality.
“It’s really important that our regulators and someone in Wes’ position talk about how all parties in the financial reporting supply chain and the corporate reporting supply chain have a role to play, and that the system works best if everybody is working together,” Fornelli said.
—With assistance from Nicola White.
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