SEC Enforcement Chief Accountant Warns About Accounting Abuses

Walter Schuetze, chief accountant
of the SEC's enforcement division

Schuetze discussed accounting abuses related to earnings management, or manipulating earnings to meet analysts' expectations. In recent months, SEC Chairman Arthur Levitt and Chief Accountant Lynn Turner have spoken out about the commission's concerns, and the SEC has called for coordinated action from management, the accounting profession, and regulators to address these issues. Schuetze specifically pointed to such controversial accounting techniques as "cookie jar reserves," that is, recording additional expenses in good times to provide an extra cushion for tougher financial periods; premature revenue recognition; improper cost deferrals; and intentional immaterial errors. He lamented that these and other abuses are not challenged by auditors who are becoming less independent of their clients, noting among other reasons an increase in socializing between audit firm and client personnel.

In introducing Schuetze as the keynote speaker, conference Chair Jeffrey M. Brinn (Nassau), who also chairs the NYSSCPA SEC Practice Committee, which sponsored the conference, hailed him as one of the true giants of the accounting profession. Brinn cited Schuetze's previous experience as SEC chief accountant and as a charter member of the Financial Accounting Standards Board.

In addition to Schuetze, the conference, now in its second year, featured speakers from FASB, NASDAQ, and the AICPA, as well as former and present SEC Practice Committee members including Michael C. Bernstein (Nassau), Peggy Wood, and Robert N. Waxman.

Other topics addressed included derivatives, stock-based compensation, earnings per share, segments, comprehensive income, business combinations, and NASDAQ listing investigations.