Intro to the Standard Setting Process - SEC

what is the mission of the U.S. securities and exchange commission?

to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation

SEC goals include

ensuring that full and fair information is disclosed to all investors prior to issuance of securities

SEC goals include

prohibiting dissemination of materially misstated information

SEC goals include

preventing misuse of information (e.g., insider trading)

SEC goals include

regulating the operation of securities markets (e.g., NYSE)

federal securities laws highlight 1933

Securities Act

federal securities laws highlight 1934

Securities Exchange Act

federal securities laws highlights 1939

Trust Indenture Act

federal securities laws highlights 1940

Investment Company Act/Investment Advisers Act

federal securities laws highlights 1970

Securities Investor Protection Act

federal securities laws highlights 1977

Foreign Corrupt Practices Act

federal securities laws highlights 1984

Insider Trading Sanctions Act

federal securities laws highlights 2002

Sarbanes-Oxley Act

federal securities laws highlights 2010

Dodd-Frank Wall Street Reform and Consumer Protection Act

Securities act of 1933

regulates initial offering of securities by a company or its underwriters

Securities act of 1933

often referred to as the “truth in securities act”

Securities act of 1933

governs issuers’ registration statements (form S-1)

Securities act of 1933

prohibits fraudulent or deceptive practices in the offering or sale of securities

What historical events prompted Congress to issue the Securities Acts of 1933 and 1934?

A direct response to the deceptive and manipulative environment frequently encountered by investors in the 1920s and early 1930s. Because the SEC acts as a conduit for information provided by issuers of securities to other market participants, the full disclosure requirement for new security issues of public companies provides adequate and accurate disclosure of material facts concerning the company and the securities it proposes to sell. Thus, investors may make a realistic appraisal of the merits of the securities and exercise informed judgment in determining whether or not to purchase them.

Securities act of 1934

granted the SEC jurisdiction over the securities markets

Securities act of 1934

regulates subsequent buying and selling of securities through brokers and exchanges (i.e., securities that are issued and outstanding)

Securities act of 1934

authorizes the government, through the SEC, to establish accounting, reporting and disclosure requirements for publicly owned companies

Securities act of 1934

prohibits deceptive and manipulative practices in the purchase or sale of securities

Securities act of 1934

SEC was formed as a result of this

Trust indenture act of 1939

deals with the issuance of bonds

Trust indenture act of 1939

requires a formal agreement, or indenture, specifying the rights of bondholders

Trust indenture act of 1939

provides for the appointment, by the issuing company, of an independent trustee to represent bondholders

Sarbanes Oxley Act of 2002 (SOX)

requires reports on internal controls

Sarbanes Oxley Act of 2002 (SOX)

requires top management certifications of F/S filed with the SEC

Sarbanes Oxley Act of 2002 (SOX)

increased focus on auditor independence

Sarbanes Oxley Act of 2002 (SOX)

created PCAOB

Dodd Frank & Wall Street Reform and Consumer Protection Act of 2010

Passed after 2008 financial crisis

Dodd Frank & Wall Street Reform and Consumer Protection Act of 2010

Provides for stronger regulation of financial industry

Dodd Frank & Wall Street Reform and Consumer Protection Act of 2010

Expands responsibilities and powers of existing financial market regulatory organizations (SEC, Federal Reserve)

Dodd Frank & Wall Street Reform and Consumer Protection Act of 2010

Focuses on governance of financial services
• Compensation-related regulations also affect accountants

Dodd Frank & Wall Street Reform and Consumer Protection Act of 2010

Established new regulatory organizations covering various
aspects of financial markets
• Special focus on oversight of financial entities “too big to fail”

Dodd Frank & Wall Street Reform and Consumer Protection Act of 2010

Whistleblowers that provide government with security violation information are protected and receive financial reward

SEC divisions and offices

division of corporation finance

SEC divisions and offices

division of enforcements

SEC divisions and offices

division of investment management

SEC divisions and offices

division of economic and risk analysis

SEC divisions and offices

office of IT

SEC divisions and offices

office of compliance inspections and examinations

SEC divisions and offices

office of the chief accountant

Which division do you think you are most likely to encounter as an accountant?

Division of corporation of finance because they inspect financial statements

Division of corporation finance

Primarily administers disclosure requirements of securities laws

Division of corporation finance

Participates in matters re: proxy statements/tender offers

Division of corporation finance

Processes and reviews registration statements and
annual/quarterly filings
• Filings reviewed on a rotating/selected basis
• Focus on disclosure weaknesses that may mislead investors resulting from misapplication of accounting standards
• Reviews can result in restatements of f/s which can have
adverse effect on a company’s share value

SEC Monitoring of Periodic Reports – Comment Letter Trends

Per PWC Viewpoint Published 11/6/2025
• Top issues for the 12-months ended 9/30/2025
• Non-GAAP measures
• MD&A content
• Segment reporting
• Revenue recognition
• Goodwill and other intangibles
• Business combinations
• Inventory and cost of sales
• Debt, quasi-debt, warrants and equity

Data Analytics & SEC Enforcement

Data gathered on companies’ financial performance and
market trading activity

Data Analytics & SEC Enforcement

Division of Economic & Risk Analysis uses Corporate Issuer Risk Assessment to identify potential financial reporting fraud

Data Analytics & SEC Enforcement

Division of Enforcement’s Financial Reporting & Audit Task
Force uses data analytics to detect fraud

What is the Purpose of Regulation S-X?

Prescribes the form and content of the financial statements included in SEC filings (including accompanying notes and schedules)

What is the Purpose of Reg. S-K?

Establishes integrated disclosure requirements of nonfinancial information in SEC filings

Examples

-          Description of business

-          Description of securities

-          MD&A

-          Legal proceedings

-          Info re: directors, officers, management

-          Risk factors

What should be included in the MD&A?

Management’s commentary on entity’s outlook, trends,
events and uncertainties

What Should be Included in the MD&A?

Addresses such matters as…
⁻ Liquidity
⁻ Capital resources
⁻ Results of operations
⁻ Critical accounting estimates

MD&A is “Item 7” of a company’s 10-K

SEC Filings registration statements

Form S-1

SEC Filings Periodic Filings

⁻ Form 10-K
⁻ Form 10-Q
⁻ Form 8-K
⁻ Proxy Statements

10-K (Annual Report)

Must be audited by CPA

10-K (Annual Report)

BS for 2 most recent fiscal years

10-K (Annual Report)

Stmts. of Income, CFL and Changes in Equity for 3 most
recent fiscal years

10-K (Annual Report)

“Large accelerated filers” must file within 60 days of the last day of the fiscal year

10-Q (Quarterly Report)

must be reviewed by CPA

10-Q (Quarterly Report)

BS for current and prior year fiscal quarter

10-Q (Quarterly Report)

Stmts. of Income, CFL and Changes in Equity for current quarter & YTD for current and preceding fiscal period

10-Q (Quarterly Report)

“Large accelerated filers” must file within 40 days of the last day of the fiscal quarter

Form 10-K & 10-Q Filing Deadlines

Depends on market capitalization (public float) of the filer

large accelerated filer: $700 million or more

deadline for 10-K filing 60 days after year-end, deadline for 10-Q filing 40 days after end of quarter

accelerated filer: between $75 million and $700 million

deadline for 10-K filing 75 days after year-end, deadline for 10-Q filing 40 days after end of quarter

non-accelerated filer: less than $75 million

deadline for 10-K filing 90 days after year-end, deadline for 10-Q filing 45 days after end of quarter

Form 8-K

must be filed within 4 business days of material event

Form 8-K is required for

Changes in control

Form 8-K is required for

Significant acquisitions/dispositions not in ordinary course of business

Form 8-K is required for

Bankruptcy or receivership

Form 8-K is required for

Resignation of director

Form 8-K is required for

Change in registered accountant (independent auditor)

Proxy Information (Rule 14c-3)

Request to cast votes for absentee stockholders at the
Annual S/H meeting
✓ Why is the content of a proxy statement considered to be
so important?
✓ What content is required?
✓ Why are disclosures describing services provided by
independent external auditor critical?

Formal SEC Pronouncements re: Accounting & Auditing

Financial reporting releases (FRRs)

Somewhat analogous to FASB Codification
▪ Highest-ranking authoritative source of accounting principles for publicly-held companies

Formal SEC Pronouncements re: Accounting & Auditing

Staff accounting bulletins (SABs)

Similar but not identical to FASB Technical Bulletins
▪ Issued by SEC staff, including the Chief Accountant, without due process, and without a vote by commission
▪ Represent staff’s current position on various accounting issues in SEC filings

Does the SEC have authority over GAAP?

FASB sets the standards, SEC tries to protect the investor

Does the SEC have authority over GAAP?

The SEC was formed through an act of congress, they have seated opportunity to the FASB to create standards

Does the SEC have authority over GAAP?

The SEC holds ultimate legal authority of accounting principles used by public companies

Does the SEC have authority over GAAP?

SEC has historically limited the use of its authority to…

Disclosure issues

Areas where it feels guidance is lacking

Does the SEC have authority over GAAP?

Generally speaking, the SEC has given the FASB authority to set U.S. GAAP

Current SEC focus

The Dodd-Frank Act of 2010 mandated that the SEC develop rules for disclosing the relationship between executive compensation and company performance, prior to 2022 there were no standardized requirements for these disclosures

Current SEC focus

Requirement for standardized disclosures became effective for 2023, and applies only to proxy and information statements

Current SEC focus

The new rules consist of a table showing executive compensation and actual compensation paid for the principal executive officer and other named officers as a group, total shareholder return for the company and its peer group, company net income, and the most important financial performance measure used to link executive pay to performance

Current SEC focus

Disclosure must also include information on the relationship between compensation and performance

Current SEC focus

Another rule resulting from the Dodd-Frank Act, adopted in 2023, requires companies to have policies in place to “claw back” executive compensation awarded based on erroneous financial information, and to disclose any amounts due