Tag Archives: advocacy

But Wait… There’s More. Get Up Close

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Option C for SEC?

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President Obama recently announced that the new new head of the Securities and Exchange Commission, more popularly known as the SEC, will be Mary Jo White. Basically, the SEC’s job is to police the markets. This work involves enforcing regulations that are meant to help protect investors. Mary Jo White is a very well-known prosecutor who, among her many accolades, was the first female United States attorney. In articles that I read, reservations were expressed about her lack of specialized knowledge of all things Wall Street. Hmm… Lack of specialized financial knowledge, huh? With an idea sparking in a corner of my brain, I looked into other SEC commissioners to see what they were all about. Since the sources that expressed doubts about Mary Jo White also stated that regulatory heads normally were market experts or academics, I expected to find a somewhat diverse mix of financial wonks as SEC commissioners. However, every last one is a lawyer. Granted the lawyers have extensive experience in the world of securities, but they are all lawyers.

The spark warming up a bit, I dug around to see if there is a rule that SEC commissioners must be lawyers and I found nothing. Joseph Kennedy, the first chairman of the SEC was many things but not a lawyer. Despite this, as time has gone by, it seems to have become the standard that commissioners of the SEC be lawyers.

So, with my basic questions answered, I have a suggestion. How about a forensic accountant as commissioner of the SEC? In a forensic accountant, you have someone with an understanding both of finance and legal systems. The work of the SEC includes regulating financial disclosures, issuing and enforcing regulations with the goal of protecting investors. Who better than a financial professional who specializes in matters suitable for a court of law to be an instrumental part of the chief regulatory body of financial markets?

Apart from knowledge of finance and law, another concern that was voiced regarding Mary Jo White (and other SEC commissioners) is their perceived lack of independence. Most of these commissioners have worked as lawyers for the very people they are meant to be policing. As I mentioned before, there is a definite cause for concern since lawyers advocate for their clients. This means that the lawyers who are commissioned to police Wall Street have generally, in the past, defended the causes of the same people they are now expected to keep in check. In addition to this, many commissioners go on from the SEC to work for companies that have financial firms as their clients. Since the forensic accountant advocates for the truth (as I have mentioned before) this conflict does not exist with the forensic accountant. The CPA forensic accountant is also bound to abide by the AICPA’s code of professional conduct and that stresses ethics, independence and objectivity.

So, here we have a professional qualified in finance, who has a detailed knowledge of financial reporting – I mean, who else is preparing the financial reports and the information behind the financial reports, if not the accountants – and who has a knowledge of legal systems and enforcement – they don’t call them expert witnesses for nothing. In addition to all of this, the professional is independent with an obligation only to the truth (not a client, now, in the past or in the future). If this is not the perfect candidate for SEC commissioner, I don’t know what is.

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Who’s Who?

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Last Sunday, I was watching The Good Wife. There was a scene where the lawyers figured out what their client had not been telling them and this piece of information was what was needed to win their client’s case. Of course, there was a reason why the client had been keeping this information from her lawyers; for all kinds of reasons revolving around her family’s moral beliefs, she did not want her family to know. So the lawyers asked, “So you want us to lie?” Her response was basically – Yes. As long as the truth does not come out, you tell them what you need to in order to win the case.

At that point, I turned to my husband in excitement and exclaimed, “I could never do that!” He looked at me, looking a little confused and I continued, “Well, the attorney advocates for their client but, as a forensic accountant, I advocate for the truth.”

This means that the lawyer’s primary interest and focus of support is their client whereas the expert, in this case the forensic accountant, is primarily focused on the truth. This does not mean that the lawyer can lie; the lawyers did not lie on that episode of The Good Wife. The American Bar Association’s Rules of Professional Conduct state that a lawyer “shall not knowingly make a false statement of material fact.” (Can’t you just tell that was written by lawyers?) The lawyer is not supposed to lie but they are not supposed to lie “knowingly”. There is no requirement that the lawyer know the truth but there is an ethical rule that the lawyer represent their client “zealously.” As a result, the lawyer could choose to believe their client’s version of a story and work to produce evidence in support of that story (advocating for the client!) There is also the issue of client-attorney privilege which means a lawyer does not have to disclose what their client tells them in confidence.

This is not the case with the forensic accountant. First, there is an expectation that a testifying expert will give an opinion based on fact. Also, the CPA financial forensics expert is bound by the AICPA’s professional standards and conduct considerations. The CPA is to be impartial, honest and free of conflict. This is because the CPA may only advocate their position. So, both as an expert witness and as a CPA, the forensic accountant is bound by a duty to the truth, not the client.

The forensic accountant takes facts, analyses them and gives impartial opinions, based on these facts, whether or not it is what the client wants to hear. The client should take this into consideration when hiring an expert. Whether the forensic accountant is hired as a consulting expert or as a testifying expert determines whether or not the forensic accountant’s opinions are discoverable. But that is a tale for another episode of The Good Wife.

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