Question

explain the relationship between the SEC and the various private sector standard setting bodies that have, over time, been relied upon to set accounting standards.

Answer 1

The Securities and Exchange Commission (SEC) was created by Congress from the1934 Securities Exchange Act. The SEC was formed in order to remove insufficient andmisleading financial statement information, which is what caused the stock market crashof 1929.Congress gave the SEC both the power and responsibility for setting accountingand reporting standards for companies whose securities are publicly traded. The SEC hasdelegated the primary responsibility for setting accounting standards to the private sector.By doing this, the SEC still has power to force a change in a standard.

Since the creation of the SEC, we've seen many authoritative bodies come into being. The FASB, the PCAOB, state boards of accountancy and several other regulatory and professional accounting organizations have evolved. The primary responsibility of the FASB is to establish, monitor, and revise GAAP and other accounting standards as needed. The main responsibility of the PCAOB is to monitor public companies and their adherence to SOX. The state boards of accountancy have the role of setting state compliance and advice on certain items to ensure that the accountant is in compliance with GAAP. The SEC has the most limited contact with state boards of accountancy when compared to the other oversight bodies. The SEC works hand in hand with the PCAOB to ensure companies are complying with SOX.