Question

1: What does SEC stands for? what it's role? 2: List and describe in detail two (2) of the GAAP principles Please Note: Your initial post is due by the end of the fourth day of the workshop. Each of the principle should be at least 200 words in length and include one academic source that is properly cited. Read and respond to at least two of your classmates' postings, as well as all follow-up instructor questions directed to you, by the end of the workshop. Each response should be at least 100 words and include one academic source that is properly cited.

Answer 1

1. SEC stands for "Securities & Exchange commission". Securities & Exchange commission is an independent agency of the United States federal government. The main objective behind formation of Securities & exchange commission was to protect the investors in United States by maintaining a fair and orderly functioning securities market. It is responsible for ensuring transparency and credibility in the securities market. SEC requires the publicly traded companies to disclose their financial information to the general public. The goal of the Commission is to offer information to investors and maintain efficient and transparent markets.

The main role of Securities and Exchange commission is to make and enforce regulations to check the activities of various entities which includes brokers, dealers, investment bankers, investment advisory companies and publicly held companies. Securities and exchange commission oversees the involvement and operations of organizations and individual investors. It also aims at establishing more effective regulations for over-the-counter derivatives and hedge funds.

The role of the Securities and Exchange Commission itself is to maintain efficient, transparent, and effective markets. Hence if I were to summarize in simpler terms, role of SEC is to regulate stock markets and associated parties in order to protect the investors from fraud, malpractice etc.

2. Two of GAAP principles are as follows :

a) Full Disclosure Principle : This is one of the most important GAAP principles from the reporting perspective. Financial statements are supposed to provide all the information regarding the entity. There are many stakeholders which are dependent on the financial statements of an entity for making various decisions such as investors for making investment decisions, management for making managerial decisions, trade unions for determining the fair amount of wages etc.

Financial statements normally provide information about a company's past performance. However, pending lawsuits, incomplete transactions, or other conditions may have highly significant effects on the company's status which might also be very important for the stakeholders and if the stakeholders are not aware of such transactions or lawsuits, they may make a wrong decision. The full disclosure principle requires the company to make disclosure of all such information as well. Balance sheet, Income statement & Cash flow statement are 3 major components of the financial statements, however, notes to financial statements and the accounting policies followed by the company are also very important and should be disclosed in full detail as per the applicable standards. Footnotes describe the policies adopted by the company in recording and reporting the transactions.

b) Revenue recognition principle : This is again one of the most important GAAP principles for any entity. Revenue is the most major part of any organization and this principle deals with when such revenue should be recognized, in which year and what amount should be recognized. It states that revenue should not be recognized until delivery of goods or completion of services. It means that revenue should only be recognized once risk and rewards or control & ownership has been passed to the other party.

This can also be explained with the help of an example of a lawyer who is on retainer. Suppose ABC company has paid retainer fees to the lawyer amounting to 1000 $. Now the lawyer will not recognize the revenue of 1000$ in his books on receipt of cash. Rather he will first record it as a liability as deferred revenue and he will only recognize it as revenue when the services have been provided to ABC company. This principle majorly deals with the cut-off assertion and tries to ensure that revenue has been recorded in the correct period.