What Are the Roles of the SEC & FASB?

There is always a risk associated with investing in securities such as stocks and mutual funds. However, the risks of doing so are lessened thanks to the SEC and FASB. It would be wise to learn what these institutions do, as companies tend to follow some of the rules and guidelines they set.

SEC is an acronym for the U.S. Securities and Exchange Commission, which is an independent federal government agency. Franklin D. Roosevelt founded it on June 6, 1934, as a result of the 1929 Wall Street Crash.

SEC’s main goal is to protect American investors who own more than ​59 percent​ of the equity market through regulation. It achieves this goal by enforcing laws to enable you to access information concerning companies and the securities they sell. That way, you can make the correct decisions concerning your finances.

For example, the SEC role in accounting standards involves the enforcement of guidelines and regulations that public companies must use when filing financial statements. The generally accepted accounting principles (GAAP) fall under this category, and the regulations are based on federal securities laws. All securities market participants, such as market exchanges and stockbrokers, are subject to SEC.

It is also worth noting that the SEC investigates insider trading and fraud within the securities market. Sometimes it misses, and sometimes it catches the thieves. Those found guilty of breaking the law may be held accountable.

A good example of securities fraudsters being held accountable is Bernie Madoff. While he did get away with running the largest Ponzi scheme in America for a while, in the end, an FBI investigation did him in. He was sentenced to 150 years in prison, and he died there in 2021.

The SEC has since tightened the rules concerning investments and has taken part in helping his victims recover some of the monies they lost. In addition to carrying out investigations, the SEC also provided advice and educational resources to investors. You can find information concerning companies and their financial records via the SEC’s EDGAR Database.

FASB is an acronym for the Financial Accounting Standards Board, a private independent body established in 1973 that sets accounting standards. Its main function is to enhance GAAP organization and improve the existing accounting and reporting standards using an inclusive and transparent process. That way, companies are less likely to make false financial statements to swindle investors.

The FASB was created for the benefit of non-profits, private and public companies. Those who are responsible for creating accounting reports are supposed to pay attention to its updated standards to create detailed reports for stakeholders.

Both the SEC and FASB work together. The SEC recognizes the latter as the leading standard-setting company for public companies. As a result, other leading organizations – such as the American Institute of CPAs (AICPA) – and various state Boards of Accountancy recognize the FASB as an industry leader.

It is worth noting that the FASB is not without oversight. It is subject to supervision from the Financial Accounting Foundation (FAF), which was created in 1972.

If you are interested in learning more about FASB standards, you can take advantage of its educational resources to do so. The board provides updated information via the FASB books, concerning old and current accounting standards. So, regardless of whether you are an investor or accountant, you can learn something new.

And even when you are a creditor, employee or member of a company regulatory body, the FASB educational resources are worth checking out. Understanding GAAP deeply will enable you to know how well a company is performing.