|  | | 2005 News and Press Releases | | |
HEADLINE NEWS:
Report From A General In The SEC's War On Fraud
Staff Writer – Business Week
Securities Mosaic. September 26, 2005
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EXCERPT: For two years, as chief accountant at the Securities & Exchange Commission, Donald T. Nicolaisen has had a ringside seat at the games executives and auditors play with financial reports. He took the job in September, 2003, when the big accounting scandals were being laid bare. A former senior partner at PricewaterhouseCoopers LLP, he doubled his staff as he oversaw controversial new SEC rules. Nicolaisen, 61, plans to leave the agency in October. Recently he talked with Senior Writer David Henry and Correspondent Amy Borrus. Here are a few edited highlights: What has surprised you most in the two years you've been chief accountant? I had grown up in the accounting and auditing profession and was proud of it. But when I came here, I saw over and over again how investors and the general public had lost confidence [in the business community, including accountants and auditors] -- it was dramatic. Also, I've been impressed by the sincerity, focus, and intellectual capacity that exists [at the SEC]. I've felt many times that I could accomplish important things with greater dispatch here than when I was in the private sector. How reliable are financial reports today? In each of the years I've been here, 7% to 10% of companies have had to restate earnings. That is unacceptable. Accounting has become rules-based and overly complex. Even sophisticated accountants have trouble transitioning from one industry to another. You see in restatements everything from deliberate misrepresentation to pure accidents. For example, the volume of restatements because of lease transactions was a surprise. For whatever reason, some companies and auditors concluded that they didn't need to follow all of the rules. You think you've seen it all, and you never have. Has the monster wave of scandals run its course? I believe we're at the end of the massive frauds we saw with Enron and WorldCom. Problems remain, but they're not of the same magnitude. Audit committees are asking more questions. Auditors are asking more questions, and analysts are asking more questions. There's less inclination to believe something that seems too good to be true. What accounting games do you watch for now? I pay attention to companies that I wouldn't expect to outperform the market by a wide margin for an extended period of time. I won't name names, but it is extremely difficult to consistently beat the averages and produce outsize returns. |
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