The Securities and Exchange Commission (SEC) has the right granted to it by Congress to issue accounting standards. The Commission has exercised this right on a relatively infrequent basis. The SEC is not a passive observer to the financial accounting

Question

standard setting process, however. Explain the general mission of the SEC and how the SEC fulfills its mission as regards financial reporting specifically.

Answer 1

The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets. In terms of financial reporting specifically, this means that the SEC monitors the accounting standard-setting process of the FASB. One former Chief Accountant of the SEC described the atmosphere in which the SEC and the FASB work as one of "mutual surprise". The SEC and FASB are in nearly daily communication. A representative of the SEC attends the meetings of both the Financial Accounting Standards Board and the Emerging Issues Task Force. The SEC has officially endorsed the FASB as the official financial accounting standard setting body. The SEC has great influence on the FASB's agenda in terms not only of which projects are admitted to the agenda but also what position on the agenda the projects occupy.

The SEC has the right to establish accounting standards but has rarely exercised that right. The SEC typically acts to encourage the FASB to resolve issues the Commission views as important to the integrity of financial accounting and reporting.

The SEC also requires companies issuing securities that will be issued to the public to make quarterly as well as annual financial statements available to investors on a timely basis. This is part of the Commission's efforts to protect investors who would otherwise have great difficulty obtaining financial information from companies whose stock these investors hold. The 10-Q is the quarterly report while the 10-K is the annual report.