SEC - Role and Standard-Setting Process

Question 1

What is the SEC?

Answer 1

A federal agency created by Congress after the 1929 stock market crash. Enforces U.S. GAAP for all publicly traded companies

Question 2

What laws does the SEC administer?

Answer 2

The U.S. Securities laws, most notably the Securities Act of 1933 and Securities Exchange Act of 1934.

Question 3

Does the SEC set Accounting Standards?

Answer 3

No, although it has the legal authority to set Accounting standards for publicly traded companies, it defers to the private sector, but does oversee. It has rejected a FASB standard before.

Question 4

What is the mission of the SEC?

Answer 4

To protect investors, maintain fair, orderly and efficient markets, and facilitate capital information. Also the ease and access to information that is relevant to the decision maker.

Question 5

What is a foreign private issuer?

Answer 5

Any foreign issuer other than a foreign government except when it meets the following standards:
-More than 50% of the outstanding voting securities are directly or indirectly owned by U.S. residents and
-Any of the following:
The majority of its executive officers or directors are
U.S. citizens
More than 50% of the assets of the issuer are located
in the U.S.
The business of the issuer is administered principally
in the U.S.

Question 6

What does the SEC do if a firm reports in a way that GAAP has been violated?

Answer 6

It sends a deficiency letter to the firm. If not resolved, the SEC can halt trading of the security.

Question 7

What is the structure of the SEC?

Answer 7

5 commissioners appointed by the U.S. President. and 4 divisions (collectively called the commission):

1. )Divisions of Corporation Finance - oversees compliance with securities acts and examines filing made by publicly held companies. All filings go here.
2. ) Division of Enforcement - Investigates when there is a violation of a securities law. Makes recommendations to the justice department on punishments.
3. ) Division of Trading and Markets - Oversees the secondary markets, exchanges, brokers, and dealers.
4. ) Division of Investment Management - Oversees investment advisers and investment companies.

Question 8

What is the most important office for Standard Setting within the SEC?

Answer 8

Office of the Chief Accountant of the SEC. This office houses the technical expertise on accounting principles, auditing standards and financial disclosure requirements. Considered the link between the SEC and the accounting profession.

Question 9

Listing of Laws administered by the SEC

Answer 9

1. ) The securities acts of 1933 and 1934
2. ) The Public Utility Holding Company Act of 1935
3. ) Trust Indenture Act of 1939
4. ) Investment Company Act of 1940
5. ) Investment Advisers Act of 1940
6. ) Securities Investor Protection Act of 1970
7. ) Sarbanes-Oxley Act of 2002

Question 10

What two things comprise Authoritative U.S. GAAP for public companies.

Answer 10

FASB Accounting Standards Codification and SEC Pronouncements.

Question 11

What is a Financial Reporting Release (FRR)?

Answer 11

Formal pronouncements by the SEC and are the highest-ranking authoritative source of accounting for public companies

Question 12

What are Staff Accounting Bulletins (SAB)?

Answer 12

These provide the SEC’s current position on technical issues. While SABs are not formal pronouncements, they are still important to financial statement preparers, because they reflect the staff’s current thinking.

Question 13

What is a formal pronouncement?

Answer 13

A pronouncement that has gone through due process

Question 14

What is an Accounting and Auditing Enforcement Release (AAER)?

Answer 14

These report the enforcement actions that have been taken against accountants, brokers, or others.

Question 15

What is the SEC’s database?

Answer 15

IDEA (Interactive Data Electronic Applications) where financial statement information is stored in XBRL (Extensible Business reporting language).