Definition
The US Securities and Exchange Commission (SEC) administers the federal securities laws. Public companies register securities and file periodic reports such as Form 10-K, which includes audited financial statements prepared under US GAAP. Regulation S-X sets presentation and auditor independence requirements. The SEC oversees the PCAOB, approves its budget and standards, and can discipline auditors who appear before it.
Why it matters in an audit or review
SEC rules add to audit work for issuers: auditor independence under Rule 2-01 of Regulation S-X, audit committee pre-approval of services, partner rotation, and filing deadlines tied to company size. Private companies are outside these rules unless they plan to file with the SEC, such as in an IPO, where past statements may need re-audit under PCAOB standards.
Example
Illustrative: a company plans to go public. Its prior auditor's reports followed AICPA standards, so the company engages a PCAOB-registered firm to re-audit the periods included in the registration statement.
Common mistakes
Assuming SEC independence rules match the AICPA rules.
FAQ
Does the SEC set accounting standards?
It has authority to, but it relies on FASB and recognizes FASB standards for issuers.
Sources
- Securities Exchange Act of 1934
- Sarbanes-Oxley Act of 2002, sections 107 and 109 (SEC oversight of PCAOB standards and budget)
- 17 CFR 210.2-01, Regulation S-X Rule 2-01, Qualifications of accountants: https://www.ecfr.gov/current/title-17/section-210.2-01
- SEC Policy Statement, Release No. 33-8221 (April 2003), recognizing FASB as the designated accounting standard setter
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error