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Author Interview with Dr. Ehsan H. Feroz

Authors of the book: "Institutional Governance and SEC Enforcement"


1. Please introduce yourself. What would you like your reader to know about you?

I am currently a tenured full professor of accounting at the University of Washington Tacoma. I got interested in the US Securities and Exchange Commission’s (SEC) Accounting and Auditing Enforcement Releases (AAER) when I was an assistant professor at the State University of New York at Buffalo. Since then, my coauthors and I have collaborated on about a dozen research projects which led to published papers. This book consists of five selected papers including a seminal paper that will give the readers an overview of this body of research. Our best hope is that this collection of papers will provide a handy reference book for the students, instructors, researchers, regulators, and investors who are interested in a better understanding of the scope and impact of the US SEC’s enforcement actions in ensuring compliance with and integrity of the Generally Accepted Accounting Principles (GAAP).    

2. What is your inspiration/motivation for writing?

Published academic research in scholarly refereed academic journals is read by a small group of researchers, even a smaller group as compared to the total readership of the globe, who are interested in the topic. Unlike most academic accounting research, our research has public policy implications. We wanted to reach a wider audience of students, instructors, researchers, market participants, regulators, and public policy makers. A book was a logical way of reaching a wider audience.  

3. How long did it take to complete your research from the idea to the book?

As I stated earlier, the idea for this line of research started as early as the nineteen eighties.  Data collection in the earlier years was painstakingly slow and time consuming since most of the data had to be hand collected from the SEC Library in New York City. Our initial targets were refereed academic journals where most of our research has been published as articles.  The idea of a book did not seriously come to my mind until I was approached by an editor of the Eliva Press, Olga Sabazova, who saw one of our recently published papers in the International Journal of Systems 2022. After that it took us less than a year to select the articles, get copyright clearances, compile them in the form of a book length manuscript, and eventually publish it. 

4. What's the main message and idea of "Institutional Governance and SEC Enforcement"?

Financial reporting fraud is a serious problem that undermines the credibility and reliability of financial statements which may eventually lead to billions of dollars of losses for investors worldwide. Effective enforcement of the financial accounting standards is a pre-requisite for maintaining the credibility and integrity of the financial reporting regime. In the absence of effective enforcement mechanisms for compliance with the financial reporting standards, the stories of the financial statements are unreliable if not misleading.   

In the US the Securities and Exchange Commission (SEC) is the main enforcer of the Generally Accepted Accounting Principles (GAAP). The SEC has budgetary and other pragmatic constraints in terms of how many targets it can effectively pursue. This simply means that not every company that cooks its books is investigated by the SEC. The enforcement mechanisms for the International Financial Reporting Standards (IFRS) are much more decentralized except for EU and are essentially in the hands of individual sovereign governments most of whom do not have adequate resources to enforce the accounting standards. Investors beware!                 

5. What was the most unexpected conclusion you came up with while preparing "Institutional Governance and SEC Enforcement"?

When my coauthors and I first got started well before the stock market crash of 1987, the going assumption in the academic accounting/finance circle influenced by Fama’s strong form of efficient market hypothesis (EMH) was that the stock market is so efficient that it can see through any potential foul play by the managers in terms of financial reporting fraud. One accounting/finance colleague even argued that “the managers cooking their books should be rewarded by the stock market because they are so smart!” 

One of the key findings of this book is that the stock market severely penalizes the companies that have been investigated by the US SEC, and that these penalties continue for as long as three years after the initial announcement of the investigation by SEC. Some of these investigated companies go bankrupt, others get merged with potential suitors. In about two thirds of the cases, the managers get fired, and some go to jail in addition to incurring financial and reputational penalties. Sometimes the auditors of these companies who did suboptimal auditing are censored and barred from the SEC practice for a certain period. In the post Sarbanes Oxley Act of 2002, the probability of getting caught is much higher and the penalties are much stiffer (up to 25 years of jail sentence and/or financial penalties). So, there is a price to be paid if the managers and/or auditors get caught! Several high-profile former CEOs and CFOs in America are currently serving time behind bars!

6. How would you describe your publishing experience with Eliva Press in a few words?

I have enjoyed working with Eliva Press. The Eliva Press has a wonderful team!  


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