What role does the SEC have in the development of accounting theory and practices?

b.Describe the official role of the Securities and Exchange Commission in the developmentof financial accounting theory and practices.

c.Discuss the interrelationship between the Securities and Exchange Commission and thefinancial Accounting Standards Board with respect to the development and establishmentof financial accounting theory and practices.

CA1-14 (Securities and Exchange Commission)The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional staff is organised into five divisions and several principal offices. The primary objective of the SEC is to support fair securities markets. The SEC also strives to foster enlightened stockholder participation in corporate decisions of publicly traded companies. The SEC has a significant presence in financial markets, the development of accounting practices, and corporation-shareholder relations, and has the power to exert influence on entities whose actions lie within the scope of its authority.Instructions(a) Explain from where the Securities and Exchange Commission receives its authority(b) Describe the official role of the Securities and Exchange Commission in the development of financial accounting theory and practices. (adsbygoogle = window.adsbygoogle || []).push({}); (c) Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices.

(a) The Securities and Exchange Commission (SEC) receives its authority from federal legislation enacted by Congress.

(b) The official role of the SEC in the development of financial accounting theory and practices is to set standards and enforce them under federal securities laws.

(c) The Standards issued by Financial Accounting Standards Board (FASB) are officially recognized as authoritative by the SEC as well as the American Institute of Certified Public Accountants (AICPA). It derives its authority to set standards from U.S. SEC.

The international standards must be of high quality and sufficiently comprehensive. To achieve this goal, the IASB and the FASB have set up an extensive work plan to achieve the objective of developing one set of world-class international standards. This work plan actually started in 2002, when an agreement was forged between the two Boards, where each acknowledged their commitment to the development of high-quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting (referred to as the Norwalk Agreement).

At that meeting, the FASB and the IASB pledged to use their best efforts to (1) make their existing financial reporting standards fully compatible as soon as is practicable, and (2) coordinate their future work programs to ensure that once achieved, compatibility is maintained. This document was reinforced in 2006 when the parties issued a memorandum of understanding (MOU) which highlighted three principles:
Convergence of accounting standards can best be achieved through the development of high-quality common standards over time.
Trying to eliminate differences between two standards that are in need of significant improvement is not the best use of the FASB's and the IASB's resources—instead, a new common standard should be developed that improves the financial information reported to investors.
Serving the needs of investors means that the Boards should seek convergence by replacing standards in need of improvement with jointly developed new standards.
Subsequently, in 2009 the Boards agreed on a process to complete a number of major projects by 2011, including monthly joint meetings. As part of achieving this goal, it is critical that the process by which the standards are established be independent. And, it is necessary that the standards are maintained, and emerging accounting issues are dealt with efficiently.
The SEC has directed its staff to develop and execute a plan ("Work Plan") to enhance both the understanding of the SEC's purpose and public transparency in this area. Execution of the Work Plan (which addresses such areas as independence of standard-setting, investor understanding of IFRS, and auditor readiness), combined with the completion of the convergence projects of the FASB and the IASB according to their current work plan, will position the SEC in 2011 to make a decision on required use of IFRS in the U.S. issuers. After reviewing the progress related to the Work Plan studies, the SEC will decide, sometime in 2011, whether to mandate the use of IFRS. It is likely that not all companies would be required immediately to change to IFRS, but there would be a transition period in which this would be accomplished.

What official role does the SEC have in the development of financial accounting theory and practice?

What role does the SEC play in establishing accounting practices?

How does the SEC affect the development of generally accepted accounting principles in the United States?

What is the function of the SEC?