Understanding the Role of the SEC in Financial Reporting &

School: Louisiana State University - Course: ACCT 4022 - Subject: Accounting

Chapter 12: Financial Reporting and the SEC  SEC created June 6, 1934 o Responsibility: ensuring complete and reliable info is available to investors o Independent agency of federal government created by Securities Exchange Act of 1934 o Headed by 5 commissioners appointed by POTUS w consent of Senate  Serve five-year staggered terms  No more than three individuals can belong to same political party  Chairman from same political party as president  Generates significant fees primarily from issuers, relative to 8-K, 10-K, 10-Q, and registration statement fees  SEC is fully self-funded o Composed of 5 divisions:  1. Division of corporation finance - responsibility to ensure publicly held companies meet disclosure requirements  Review registration statements, annual and quarterly filings, proxy materials, annual reports, and tender offers  2. Division of trading and markets  3. Division of enforcements  4. Division of investment management  5. Division of economic and risk  Office of IT supports SEC and staff  Office of Compliance Inspections and Examinations  Office of Chief Accountant  Securities Act of 1933 - regulates initial offering of securities by a company or underwriter (truth in securities law)  Securities Exchange Act of 1934 - created the SEC and regulates subsequent trading of securities through brokers and exchanges  All publicly held companies must periodically file detailed reports with the SEC o Public Utility Holding Company Act of 1935: Requires registration of interstate holding companies of public utilities covered by this law  This act was passed bc of abuses in the 1920s in which huge, complex utility empires were created to minimize the need for equity financing o Trust Indenture Act of 1939: Requires registration of trust indenture documents and supporting data in connection with the public sale of bonds, debentures, notes, and other debt securities o Investment Company Act of 1940: Requires registration of investment companies, including mutual funds, that engage in investing and trading in securities  This act is designed in part to minimize conflicts of interest that arise with fund management o Investment Advisers Act of 1940 and Securities Investor Protection Act of 1970: Require investment advisers to register and to follow certain standards created to protect investors o Foreign Corrupt Practices Act of 1977: Affects registration indirectly through amendment to Securities Exchange Act of 1934. This act requires the maintenance of accounting records and adequate internal accounting controls

o Insider Trading Sanctions Act of 1984 and Insider Trading and Securities Fraud Enforcement Act of 1988: Also affect registration indirectly. Increase the penalties against person who profit from illegal use of inside information and who are associated with market manipulation and securities fraud o Sarbanes-Oxley Act of 2002: Designed as an answer to the numerous corporate accounting scandals that came to light in 2001 and 2002. As discussed later section of this chapter, this act mandated several reforms to bolster corporate responsibility, strengthen disclosure, and combat fraud. Also created the PCAOB to oversee accounting profession o Dodd-Frank Act: considering additional financial market scandals, Congress passed, and President Obama signed the Wall Street Reform and Consumer Protection Act of 2010. Marked significant expansion of federal government's role in regulating corporate governance, required both stress tests and so-called living wills as safety valves designed to plan for financial disaster for banks that are deemed to important to financial system to fail  Established the Consumer Financial Protection Bureau (CFPB), and provided expanded authority to the SEC to require extensive disclosures concerning corporate compensation  In 2018, Congress and President Trump signed a rollback of Dodd-Frank, largely based on concerns that it placed unnecessary burdens on small and medium- sized lenders which had forced consolidation of banking system