Krystal Keely (KK): First I want to thank you for coming to The Mason School of Business at The College of William and Mary—and for agreeing to be interviewed!   Here goes…

KK: Accountants have been receiving a lot of negative attention recently.  Are you proud to have spent your career as an accountant and auditor….and why?

Donald Nicolaisen (DN): Well, first let me thank you for inviting me to William & Mary.  It is a pleasure to be here.  I was very proud of the profession, the opportunities it affords to young people, the opportunity that it afforded to me to really be exposed to business environments, transactions, and companies that I didn’t think I would be associated with when I was in college.  So it’s been good.  I believe the profession has had worthy and laudable goals. 

There’s no question that the profession did stumble, did drop the ball and that part of the fix is really what we’re living through right now – this post-Sarbanes-Oxley world where there are new procedures, new requirements, where the auditors are rededicated to what they’re doing…and I think once again we can be proud of the profession.

KK: What does it mean when we hear people say that accounting is a profession?

DN: Well to me it means that you behave like a professional.  You’re not doing things by routine, you’re doing things using judgment, exercising your native ability to think.  You’re able to bring to the table intellectual solutions and, to me, that’s what it means to be a professional.

KK: Do you think there is still a crisis of confidence in the accounting profession and, if so, what can someone like me who is just starting out do about it?

DN: I think there is still an element that believes that the accounting profession hasn’t done much to improve its image-that is to strengthen the quality of financial reporting and auditing.  When I look at what’s really left that is a challenge, it is to take some of the complexity that has grown in financial reporting out of the process, and if we had rules that were less rule-based and a little more principles-based perhaps we’d see fewer exceptions to the principles and fewer restatements of financial statements.  When that occurs I believe the profession will have every right to be significantly pleased by their accomplishment.

KK: I’d like to ask you some questions about your career path, as a way to explain to other students how many interesting aspects there are to an accounting career.  You started out your career as an auditor.  How will the work of new auditors today differ from your experiences when you were just starting out?

DN: Well the work of an auditor – I started with one of the large firms, which meant that I had the luxury of going to different clients and I think it’s that ability to see different companies, different systems, different management teams, different accounting and auditing environments that helps develop an individual as a professional.  That part continues – it certainly, certainly will be there. 

In my own career I had experience in virtually every industry you can imagine.  I think as the world has becomes more complex, particularly in financial reporting, you’ll see people specialize earlier in financial services or retail or consumer products and it’s simply because of the complexity in the volume of data that’s out there. 

The other real change is technology.  When I entered the profession, everything you did, you did with a pencil, you did it with paper-based spreadsheets and lots of labor attached to it and a lot of thinking as to where do I put this and how do I demonstrate that and how do I track the process to make sure that everything is covered.  Much of that now is automated and the use of laptops and additional auditing power they bring I think is a real improvement in the audit process.  You still have to think, it’s just that you have a few more tools to use than what I would have had.

KK: You spent a lot of time working with Financial Services companies and were even in charge of that group for PwC.  What aspects of the financial services business do you find most interesting?

DN: Well I think the part that I like about it is that the financial services industry is loaded with really smart people.  They tend to be the people who design and initiate major transactions.  So the part that’s particularly appealing to me is that it’s an interesting, dynamic sort of front-line industry that’s engaged in business transactions.  But it’s also more than that; the financial services industry has large retail types of customers.  They cover a wide base of activity, and so within a financial services company there’s a lot of diversity of practice as well.  So I just find them interesting.

KK: You also were in charge of the National Office Group for Accounting and SEC Services.  Can you tell us about the work of that group, and what you liked best about working with them?

DN: The National Office was sort of an extension of what you do as an auditor.  Instead of having one client you now have partners and managers as your clients.  So, they’re out serving the real customers – the audit clients – and they’re doing the bulk of the work, but you get to see a lot of really interesting things.  And so they’ll come to the national office for help or for support or for fresh thinking on issues.  To do that for a really wide variety of clientele is extremely challenging, but it’s very interesting and it does keep you motivated; it does keep you fresh.

KK: You then started to become involved in setting accounting standards when you became a member of the EITF (Emerging Issues Task Force)?  How was that different from your work as a partner at PwC?

DN: Well it is somewhat complementary because the Emerging Issues Task Force is the group that deals with issues that are relatively new, and that would be difficult for the FASB to deal with in an abbreviated timeframe.  And so it’s those issues most evident in practice while you’re auditing, and while you’re part of a national office.  Someone will identify those issues and then find that others – your peer group – are working with the same kinds of issues.  It’s a really good opportunity to get together and bring combined knowledge of transactions to the table and then get the best thinking as to what the appropriate accounting should be for those particular circumstances.  So I think it’s fairly complementary with the work of an auditor.

KK: What was it like being the chief accountant at the SEC?  What was a typical day like?

DN: Well, being Chief Accountant meant you were a regulator, which means different things to different people.  Some people really like regulators; a lot of people would prefer not to see a regulator.  I found it to be very fascinating, very challenging and a time where there was serious dedication to improving the quality of financial reporting and auditing, as well as the entire corporate governance and all other areas associated with business.  It was post-Sarbanes-Oxley, so it was a unique point in history. 

I like the support that I had from my staff especially – just a tremendously great staff – but also from the rest of the Commission.  And I like the idea that if we were open and communicated with the Congress, members of Congress and others (various special interest groups) that you could reach good conclusions as to how to improve information flow to investors and, in turn, strengthen our capital markets.  So, for me that was what was exciting. 

There were long days:  I would commute from New Jersey by train, coming down to Washington on Sunday night, and then heading home Friday night, arriving home late.  So it meant short weekends and long work weeks.  And we worked pretty solid throughout the day – early morning till pretty late at night.  But it’s easy to do that and it’s fun to do that when you think you’re making progress and when you’re dealing with things that are really interesting. 

So, a typical work day varied somewhat but certainly during the course of a week we usually talked to or visited somebody in Congress.  I would meet with a lot of different industry groups or individual companies who were dealing with issues or regulators from other parts of the world or from the United States – other regulatory bodies.  I had oversight responsibilities for the PCAOB and for the FASB, so I spent time trying to keep current on what was happening in both of those areas and working with them.  I tried to spend time developing the staff.  I think that they are a great group of people at the Commission; and we doubled the size of the staff while I was there and we did that on a real quality basis.  So there was certainly enough to stay busy.

KK: Can you describe what you wanted to accomplish when you became Chief Accountant and whether things worked out as you expected? 

DN: Yeah, when I came to the Commission it was at a time of crisis.  The Enrons and the WorldComs of the financial world had imploded.  Sarbanes-Oxley had passed, but a lot of the implementation aspects were still to be worked out.  PCAOB had been created but was in its infancy.  The SEC was working hard to deal with their own accounting standards, both in responses to the request of Congress with respect to off balance sheet entities, but also in accounting for stock options.  So there was a flurry of activity. 

The accounting firms were diligently strengthening their audit practices and they wanted help.  They needed, in some cases, guidance in areas; PCAOB was a big piece of that, and we worked with the PCAOB.  So, it was a time of a lot of change, and change is usually a good time to have things that you want accomplished get accomplished.  And I came with an agenda on the front end:  I really did want to see the trust in the system returned, so that investors could have confidence in financial statements and they could have confidence in the quality of auditing that was done.  I had laid out in my own mind the things that I thought were necessary along the way to see that happen and for the most part I think we did accomplish what we set out to do. 

The one area that has a longer term tale to it is to improve, or at least to simplify, the accounting models – not to dummy them down but to make them less complex than they are today, and it’s that complexity that still continues to lead to confusion for investors.

KK: What would you like to be remembered for professionally that you accomplished in your career 50 years down the road?

DN: Fifty years from now I’d like to be remembered as the oldest living former Chief Accountant!  As somebody who put good faith effort in at a time of crisis to strengthen the profession and improve investor confidence in our capital markets.

KK: In your opinion, what are the most pressing financial reporting issues that the FASB, IASB, and SEC face today?

DN: There are a lot of them.  They have very full plates.  Each issue that they’re dealing with is, by itself, fairly complex and could consume a lot of energy and could take a lot of time to get done.  Personally, I think in each scenario, whether it’s the FASB, SEC, or IASB, any of them can do better by taking out some of the complexity, some of the optionality that exists in current accounting standards.  But I think that the rules are, just like anything else, periodically if you take another look at it, you can probably make it better-you just have more experience and more ability to do that.  So, I would say continuing improvement is really the order of the day.

KK: I asked you earlier to compare auditing at the start of your career to auditing for someone starting today.  Do you have any predictions about what changes I should expect to see in the role of the accounting professional during my career?

DN: Well, I think the accounting profession will continue to evolve.  There are a lot of financial pieces of information that they will continue to audit.  I believe that over time we’ll see databases of financial information available faster, that it will be produced cheaper, and that it will be more accurate.  This whole concept of better, faster, cheaper is part of what we’ll see in financial reporting and accounting – that means better systems.  I think it means more comparability of information, so things like XBRL which is a language that can be used for financial reporting, I think will continue to gain momentum and as I think you will see that the accounting profession will have more things to deal with that are important and fewer things to deal with that are less important. 

Right now a lot of time is spent on footnotes to financial statements and very careful review of accounts.  I think over time, better use of technology will permit better comparisons and less need for these very, very lengthy and very detailed explanations because if you’ve identified something that’s belonging in this account with this definition, that’s perhaps sufficient without a lot of extra work to explain why you’ve put it where you’ve put it in your particular financial statements.  So, I think the main difference is you’re going to see more use of technology, probably more demand for service, and certainly pressure to do it on a more real-time basis than has been true up to this point in time.

KK: One last question:  What is the most important advice—educationally and/or personally—that you would give to me and my classmates as we begin our careers?

DN: It’s hard to reduce that kind of comment down to one thing!  So let me at least try a couple:  From a personal standpoint, N individual standpoint, I think maintaining your principles and your integrity and your confidence, having the right attitude are really the drivers that lead to success.  Don’t compromise things that really matter, but don’t fight over the things that are not that important.  It’s getting that sort of priority within your own self right.  And I think beyond that, within the academic world the one area that I think everyone can do better with is communications.  So if you can communicate better than the next person you will be more successful.  It is an absolutely essential tool in the business environment.

KK: Thank you very much for visiting us and for providing us with this perspective and we appreciate your time!