Describe the role of the SEC in society – Global Homework Experts

(Objective 2-3) Describe the role of the SEC in society and discuss its relationship with and influence on the practice of auditing.

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(Objective 2-3)


The Securities and Exchange Commission (SEC), an agency of the federal govern – ment, assists in providing investors with reliable information upon which to make invest ment decisions. The Securities Act of 1933 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. The Securities Exchange Act of 1934 provides additional protection by requiring public companies and others to file detailed annual reports with the com – mission. The commission examines these statements for completeness and adequacy before per mitting the company to sell its securities through the securities exchanges. Although the SEC requires considerable information that is not of direct interest to CPAs, the securities acts of 1933 and 1934 require financial statements, accompanied by the opinion of an independent public accountant, as part of a registration statement and subsequent reports. Of special interest to auditors are several specific reports that are subject to the reporting provisions of the securities acts. The most important of these are as follows:

Form S-1. “S” forms apply to the Securities Act of 1933 and must be completed and registered with the SEC when a company plans to issue new securities to the public. The S-1 form is the general form used when there is no specifically prescribed form. The others are specialized forms. For example, S-11 is for regis – tration of securities of certain real estate companies.

Form 8-K. This report is filed to report significant events that are of interest to public investors. Such events include the acquisition or sale of a subsidiary, a change in officers or directors, an addition of a new product line, or a change in auditors.

Form 10-K. This report must be filed annually within 60 to 90 days after the close of each fiscal year, depending on the size of the company. Extensive detailed finan cial information, including audited financial statements, is contained in this report.

Form 10-Q. This report must be filed quarterly for all publicly held companies. It contains certain financial information and requires auditor reviews of the financial statements before filing with the commission. Because large CPA firms usually have clients that must file one or more of these reports each year, and the rules and regulations affecting filings with the SEC are extremely complex, most CPA firms have specialists who spend a large portion of their time ensuring that their clients satisfy all SEC requirements. The SEC has considerable influence in setting generally accepted accounting principles (GAAP) and disclosure requirements for financial statements as a result of its authority for specifying reporting requirements considered necessary for fair disclosure to investors, such as the recent requirement to begin filing financial statement data in XBRL format. The SEC has power to establish rules for any CPA associated with audited financial statements submitted to the commission. The SEC’s attitude is generally con sidered in any major change proposed by the Financial Accounting Standards Board (FASB), the independent organization that establishes U.S. GAAP. The SEC requirements of greatest interest to CPAs are set forth in the commission’s Regulation S-X, Accounting Series Releases, and Accounting and Auditing Enforcement Releases. These publications constitute important regulations, as well as decisions and opinions on accounting and auditing issues affecting any CPA dealing with public