As global vice chair of strategy, communications and regulatory affairs for Ernst & Young, LLP, Beth Brooke focuses on developing the firm’s strategic direction and shaping its position on public policy. Based on dialogues among various stakeholder groups she organizes, she is helping to restore investor confidence and public trust in capital markets. At an April Lyceum presentation, “Current and Future Regulatory Landscape in Accountancy,” Brooke offered some insights and predictions on this topic.
Currently, she said investor confidence is stabilized but fragile. “In the United States, it’s the regulatory environment where we are tough, but unfortunately it’s an environment where fraud is going to happen,” Brooke said. “Just look at the headlines and you’ll read about potential wrong doing, which has shaken investor confidence on the retail side.”
Brooke is a strong advocate for the profession’s public responsibility to the financial markets. Speaking on behalf of all players in the accounting profession, Brooke said, “If we do our job well, confidence is maintained in the system. If we don’t do our job well, confidence goes down.”
She outlined her predictions on things that will change in the future, given Sarbanes-Oxley, and that investors are now experiencing how vital the accounting profession is to global capital markets.
“It’s no secret that emerging markets have gotten stronger, and Washington is worried,” she said, “worried that the U.S. is loosing its competitive edge.”
What is really going on, she said, is that the U.S. will have to learn to deal differently with these emerging markets, which are getting stronger. Still, she adds, U.S. competitiveness is a hot topic in the halls of Congress.
Studies on why the U.S. is loosing its competitiveness are underway, and Congress is taking note. Brooke offered some highlights:
The first reason, according to studies, is our complex regulatory system. “A big difference between the U.S. and any other country is the sheer complexity of our rule-based accounting system and our regulatory response,” she said.
Brooke said the litigation system in the U.S. is another reason why the country is loosing its competitiveness. “The litigation system is such a novel world here in the U.S.,” she said. “Take China for example, where the first company that listed on the NYSE got sued within the first 24 hours. That’s legendary.”
She predicted that the next 5-10 years will get interesting, with big differences emerging between accounting standards around the world, namely the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (GAAP). “The U.S. and Europe are starting to play nice in the same sandbox, because if they don’t try to create a better set of standards at the top, the standards will be developed at the bottom,” she added.
In response to a question on the complexity of regulation and litigation and what’s being done given that it’s also on the minds of our politicians, Brooke said, “We, as a profession, are quietly talking with the SEC regarding what we can do with regulation, because litigation is the engine behind it, and it’s important to politicians. Voters want to be sure that if they’ve been wronged, they’ll be able to pursue justice.”
Citing Enron as an example, she noted that it affected many, and that teacher’s pensions, among others, were hammered. “Still, she noted, the profession needs a cap on catastrophic suing.”
In closing, she encouraged students to take responsibility in helping to restore confidence and trust in public markets. “If I could give you only one piece of advice,” Brooke said, “it’s that you only get one shot at integrity. On that issue, you don’t get a second chance.”