Securities and Exchange Commission (SEC)

Definition

The Securities and Exchange Commission (SEC) is a U.S. government agency responsible for enforcing federal securities laws, regulating the securities industry, and protecting investors. The SEC plays a crucial role in promoting ethical standards in the financial markets, ensuring transparency, and fostering trust among investors through its regulatory oversight.

5 Must Know Facts For Your Next Test

1. The SEC was established in 1934 in response to the stock market crash of 1929 to restore investor confidence in the capital markets.
2. The SEC requires public companies to disclose significant financial information regularly, which helps ensure that investors have access to critical data for informed decision-making.
3. One of the SEC's main functions is to enforce compliance with securities laws and take action against those who engage in fraudulent or deceptive practices.
4. The SEC has five commissioners appointed by the President, including a chairperson, who oversee its operations and policies.
5. The agency's mission includes promoting fair and efficient markets, protecting investors, and facilitating capital formation through a transparent regulatory framework.

Review Questions

• How does the SEC contribute to ethical practices within the accounting profession?
  • The SEC plays a vital role in promoting ethical practices within the accounting profession by enforcing transparency and requiring regular disclosures from public companies. By mandating that these companies provide accurate financial statements, the SEC ensures that investors can make informed decisions based on reliable information. This oversight not only helps maintain trust in financial markets but also encourages accountants to adhere to high ethical standards when reporting financial data.
• Evaluate the impact of the Sarbanes-Oxley Act on the regulatory framework established by the SEC.
  • The Sarbanes-Oxley Act significantly strengthened the regulatory framework overseen by the SEC by implementing stricter standards for financial reporting and corporate governance. It established new requirements for internal controls and mandated that top executives personally certify the accuracy of financial statements. This act aimed to enhance transparency and accountability, addressing many issues that led to corporate scandals. As a result, it has reinforced investor confidence and aligned closely with the SEC's mission of protecting investors.
• Assess how the SEC’s enforcement actions against insider trading reflect its commitment to ethical leadership in financial markets.
  • The SEC's enforcement actions against insider trading are a testament to its commitment to ethical leadership and maintaining integrity in financial markets. By actively pursuing cases against individuals and firms that exploit non-public information for personal gain, the SEC sets a strong precedent that unethical behavior will not be tolerated. This proactive stance serves as a deterrent to potential offenders, promotes fair competition, and ultimately fosters a culture of ethical conduct among market participants, aligning with broader principles of accountability and transparency.

Related terms

Insider Trading: The illegal practice of trading stocks based on non-public, material information about a company, which undermines market integrity.

Sarbanes-Oxley Act:

A law enacted in 2002 to protect investors from fraudulent financial reporting by corporations, establishing new standards for corporate governance and accountability.

Public Company Accounting Oversight Board (PCAOB):

A private-sector nonprofit established by the Sarbanes-Oxley Act to oversee the audits of public companies and protect the interests of investors.