August 16, 2019
In May, Wesley Bricker, the Securities and Exchange Commission’s (SEC) Chief Accountant, announced that he was stepping down. Early last month, we learned where he had landed: PricewaterhouseCoopers (PwC), one of the “Big Four” auditors, as Vice Chair and Assurance Leader for the US and Mexico. With this move, Bricker has completed his fourth turn through the revolving door between PwC and the SEC. Although seemingly remarkable, his career trajectory is emblematic of the nearly nonexistent lines between regulators and those they are tasked with regulating. As this example makes clear, reforming agencies like the SEC so that they work for the public good will not just be a matter of choosing good commissioners, but of changing the culture and expectations for personnel throughout all echelons of these entities.
Understanding why Bricker’s move concerns us requires briefly delving into the world of corporate audits. Although most people associate the SEC with insider trading enforcement, the Commission also plays an important role in ensuring that companies are being honest about their financial situation, helping to avoid Enron-style collapses.
So how does this unfold? Publicly traded companies are required to undergo an outside audit of their finances and internal controls each year. These audits are performed by supposedly independent private companies, usually one of the “Big Four,” (PwC, KPMG, Deloitte, or Ernst & Young). The auditors’ audits are, in turn, periodically audited by the Public Company Accounting Oversight Board (PCAOB), a non-profit company that reports to the SEC.
The problem lies with the private auditors’ supposed independence. Auditors are paid by their clients — the companies they investigate — for their work. They therefore depend on cultivating positive relationships with those they are auditing to create repeat customers. Highlighting a company’s mistakes too frequently can work at cross-purposes with this goal, which is why auditors often correct, rather than report, a company’s errors.
The PCAOB and the SEC are supposed to prevent auditors from misbehaving in this way. However, staffed as they are with many people who once worked (and it seems, will likely work again) for the Big Four auditors in question, their ability to act as a robust safeguard against rampant abuse warrants skepticism.
That brings us back to the official in question, Wesley Bricker. As Chief Accountant, Bricker had a great deal of power to influence accounting standards and determine the scope and severity of enforcement. Given his extensive experience working for one of the entities he was charged with regulating, however, it is hard to believe that he applied himself fully to that job.
Even if he had, however, his decision to return to PwC warrants serious concern on its own. In his time as Chief Accountant, Bricker undoubtedly gained an intimate knowledge of the SEC’s strengths and its weaknesses. He is, right now, arguably better positioned than anyone in the world to help auditors avoid regulatory scrutiny. That is perhaps why PwC is so happy to have him back.
The integrity of financial audits may seem like a dull subject, but it has important implications for working people. Enron’s collapse put thousands of people out of jobs and destroyed their retirement savings. The “Big Four” auditors overlooked much of the fraudulence that helped crash the economy in 2007.
Ideally, we would be able to trust that regulators throughout the system were working steadfastly to advance and defend the public interest. As Bricker’s career trajectory demonstrates, however, such confidence might be unreasonable.