Question

Explain the relationship of the SEC and the Financial Accounting Standards Board (FASB).

Answer 1

In the U.S. there is a very close relationship between the Securities and Exchange Commission (SEC), and the Financial Accounting Standards Board (FASB).

The SEC's mission is to protect the interest of investors, to maintain orderly and efficient markets and to assets companies in raising capital. It oversees company financial reporting and market activity and has the power to levy fines and bring lawsuits if rules are broken. The FASB is an independent organization that creates financial reporting standards for public and governmental organizations. Its role is to ensure that companies report financial information in a clear and ethical way, and that accounting practices are consistent. This ensures that anyone reading a financial report can understand what information is given, what is meant by various terms and how financial operations are functioning.

The SEC requires all publicly traded companies to provide fully detailed financial reports to the public on a quarterly basis and uses the FASB standards as format for those reports. Together, the SEC and FASB wants to make sure that people/investors have as much information as possible about the companies they invest in, and that this information is delivered in a clear and consistent manner. FASB standards are aimed at creating the financial transparency for companies and eliminating the fraudulent activity so that companies are less likely to fool the investors through accounting slight-of-hand.