What to Expect from the New SEC Chair

In May, the White House announced that Harvey Pitt, a corporate attorney who helped facilitate last year’s compromise between the SEC and the accounting profession over auditor independence, had been named to head the SEC. As of press time, Pitt’s appointment awaits confirmation by the U.S. Senate.

If confirmed, Pitt, a Republican who served as general counsel of the SEC during the Carter administration, will replace Laura Unger, who has been serving as interim chair since February, when Arthur Levitt departed after eight years at the head of the agency. As a senior partner at the New York law firm of Fried, Frank, Harris, Shriver & Jacobson, Pitt’s clients include the AICPA and the Securities Industry Association.

Dan L. Goldwasser, a partner at Vedder, Price, Kaufman & Kammholz in New York City and a member of The CPA Journal editorial board, describes Pitt as, “in a word, brilliant. I knew him when he was general counsel at the SEC, where he earned the reputation for doing absolutely exhaustive work. His typical memo would be 150 pages long with 500 footnotes. He was probably the first SEC general counsel to employ the encyclopedic writing style that has come to be the model for current SEC releases.

“After leaving the post of general counsel at the SEC,” Goldwasser continued, “Pitt went on to build an impressive law practice, primarily defending individuals and companies in class action suits and SEC enforcement proceedings. In addition, he wrote the original white paper on auditor independence that was published by the AICPA right after the Independence Standards Board [ISB] was formed. It was intended to present to the ISB the profession’s view of how independence issues should be approached. The SEC, however, rejected it out of hand as being ‘by and for’ the Big Five firms.

“Yet, major aspects of that publication were adopted by the ISB in its proposed conceptual framework statement. In particular, the ISB adopted Pitt’s concept of employing safeguards to offset potential impairments to audit independence,” Goldwasser explained. “This is the only approach devised to date that is capable of addressing the problem posed by the economic importance of the client to the auditor. It was unfortunate that the SEC rejected this approach in its recently adopted rule.

Remember that Pitt brokered the ultimate resolution of the audit independence debate with the SEC, the AICPA, and the large accounting firms. The issue that remains, however, is: Does the SEC want to set independence standards, or will it leave that job to the ISB? Pitt may decide to address this issue, but I don’t know that it will be high on his agenda. Although Pitt is not an enemy of the accounting profession, he does believe that the SEC has a lot of power, and, therefore, he is likely to continue the activist approach that Levitt favored.

“As general counsel,” Goldwasser concluded, “he took positions that were expansive of the SEC’s power—so, as chair, he’s likely to be aggressive in asserting the agency’s power to regulate the profession.”

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