What is the securities and exchange commissions current role in accounting standard setting?

In this article, you will learn about the rules that govern accounting. GAAP sets the rules that accounts follow when making journal entries and standardizes accounting so outside parties can make comparisons between companies. Investors, creditors, even employees count on the consistency of financial reporting to evaluate operations.

Standard-Setting Groups: SEC, AICPA, and FASB

The SEC enforces and regulates security laws, the AICPA dictates the professional conduct of accountants, and the FASB develops GAAP.

Learning Objective

• Differentiate between the SEC, the AICPA, and the FASB

Key Points

• The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in the public's interest.
• Founded in 1887, the AICPA is a professional organization of Certified Public Accountants (CPAs) in the United States. The AICPA has nearly 386,000 CPA members in 128 countries in business and industry, public practice, government, education, student affiliates, and international associates.
• The US SEC is a federal agency that holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States.

Terms

• FASB

  The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in the public's interest.

• Securities and Exchange Commission

  an agency responsible for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States.

The Financial Accounting Standards Board (FASB)

The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in the public's interest.

Under the direction of the SEC the Committee on Accounting Procedure was created by the AICPA in 1939. It was the first private sector organization that had the task of setting accounting standards in the United States. In 1959, the Accounting Principles Board (APB) was formed to meet the demand for more structured accounting standards. The APB issued pronouncements on accounting principles until 1973, when it was replaced by the Financial Accounting Standards Board (FASB). The APB was disbanded in the hopes that the smaller, fully independent FASB could more effectively create accounting standards. The APB and the related Securities Exchange Commission were unable to operate completely independently of the U.S. government

The FASB's mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information".

To achieve this, FASB has five goals:

1. Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance, reliability, comparability, and consistency.
2. Keep standards current to reflect changes in methods of doing business and in the economy.
3. Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard-setting.
4. Promote international convergence of accounting standards concurrent with improving the quality of financial reporting.
5. Improve common understanding of the nature and purposes of information in financial reports.

The FASB sets standards based on its conceptual framework. In addition, they offer guidance on how to implement these standards, but they do not monitor companies for violations of the financial reporting standards. That is left to the Securities and Exchange Commission.

The US Securities and Exchange Commission (SEC)

The U.S. Securities and Exchange Commission (SEC) is a federal agency that holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States. The SEC was created by Section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and commonly referred to as the 1934 Act).

Overview

The SEC was established by the United States President Franklin D. Roosevelt in 1934 as an independent, quasi-judicial regulatory agency during the Great Depression. The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges, the companies whose securities were traded on exchanges, and the brokers and dealers who conducted the trading.

Currently, the SEC is currently responsible for administering seven major laws that govern the securities industry:

1. The Securities Act of 1933
2. The Securities Exchange Act of 1934
3. The Trust Indenture Act of 1939
4. The Investment Company Act of 1940
5. The Investment Advisers Act of 1940
6. The Sarbanes–Oxley Act of 2002
7. The Credit Rating Agency Reform Act of 2006.

The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies alleged to have committed accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law. The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offenses which include a criminal violation.

To achieve its mandate, the SEC enforces the statutory requirement that public companies submit periodic reports. Quarterly and bi-annual reports from public companies are crucial for investors to make sound decisions in the capital markets.

The American Institute of Certified Public Accountants

AICPA Offices

The offices of the American Institute of Certified Public Accountants (AICPA) at Palladian Office Park (220 Leigh Farm Road) in Durham, North Carolina.

Founded in 1887, the American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants (CPAs) in the United States. The AICPA has nearly 386,000 CPA members in 128 countries in business and industry, public practice, government, education, student affiliates, and international associates. It sets ethical standards for the profession and U.S. auditing standards for audits of private companies, nonprofit organizations, federal, state, and local governments. It also develops and grades the Uniform CPA Examination.

The AICPA's founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, and a commitment to serving the public interest. While the AICPA sets the professional standards for the professional conduct of accountants, it plays no role in setting the standards for financial accounting.

Source: Boundless