A tribute to SEC Chairman Arthur Levitt

By the time you read this, SEC Chairman Arthur Levitt will have packed up his office and moved on to the next phase of his distinguished career. Reflecting on what he has accomplished during his tenure as the longest-serving chairman in SEC history, I realized how much he has done to refocus our profession by stressing investor protection. I, for one, will miss him, and whatever he turns his attention to next will certainly be worth watching.

By virtue of his individual accomplishments, his energy, and his level of activism on behalf of the individual investor, Levitt became something of a personal hero to me. Many people come and go and achieve little, but this man, whether or not you agreed with him, made enormous progress. Within only the last four years of his tenure, he accomplished more than any of his recent predecessors—some would even say more than any two of them put together.

One of Levitt’s first successes was to teach remedial English and drag underwriters and the securities bar into the era of “plain English” prospectuses and proxies. In 1998 he gave his “Numbers Game” speech, focusing attention on inappropriate earnings management in the form of “big bath” charges and restructuring reserves, creative acquisition accounting (purchased in-process R&D), cookie-jar reserves, so-called immaterial errors, and the premature recognition of revenue. Three major staff accounting bulletins (SABs) at the end of 1999 dealt squarely with materiality and its application in preparing financial statements, restructuring, and revenue recognition.

For CPAs, the “Numbers Game,” still well-remembered and oft-quoted, was only an overture to last year’s auditor independence proposal. That proposal stirred up a firestorm of controversy, but the job was ultimately finished—maybe not to everyone’s satisfaction, but such is the nature of negotiation. Levitt knew that his proposal was disparaged in certain quarters, but he built acceptance of it, part by part, and eventually (fairly quickly, in fact) two generally incompatible groups—the regulator and the regulated—reached consensus on a complex, contentious issue.

The Blue Ribbon Committee formed by the New York Stock Exchange and the National Association of Securities Dealers made recommendations to strengthen the role and performance of audit committees. Through Levitt’s efforts, SEC releases supported these initiatives by requiring additional proxy disclosures. Late last year, he finished the new fair disclosure (FD) rule, effectively leveling the playing field between investors and analysts.

Throughout Levitt’s term, the common denominator has been his concern for the individual investor and desire to make information understandable and available, and he has won many battles. Time and again, he has shown that the SEC will take enforcement action against registrants that file financial statements with serious irregularities, misstatements, and poor internal controls. Yet, in his town hall meetings and other speeches, he stressed that investors are responsible for reading proxies, prospectuses, and financial statements; for educating themselves; and for asking questions.

For me as a CPA, this advice translates into being ever more inquisitive, skeptical, and vigilant—focused on illegal acts, internal controls, related-party transactions, GAAP, GAAS, and especially common sense.

Editor’s Note: The May CPA Journal will include a special feature section with additional personal reminisces and perspectives on Arthur Levitt’s career and his tenure as SEC chairman.

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