The Securities & Exchange Commission: Definition, History & Purpose

The Securities & Exchange Commission: Definition, History & Purpose
Coming up next: Merchandising Company: Definition, Activities & Income Components

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:05 SEC Definition
  • 0:23 SEC History
  • 1:33 Purpose of the SEC
  • 2:49 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

The accounting industry is regulated by several organizations. Each of these were created by the Securities and Exchange Commission. In this lesson, you will learn the definition, history, and purpose of the SEC.

SEC Definition

All business sectors in the United States operate under guidelines that have been established either directly or indirectly by our government. The accounting industry is no different. The organization that oversees accounting practices is called the Securities and Exchange Commission, which is also known as the SEC.

SEC History

During the mid-1920s, times appeared to be good financially. The stock market had become so popular that people were taking their life savings and investing in it. They were confident that with the soaring price of stock, investing was certainly a get-rich-quick scheme.

On October 29th, 1929, stock prices plummeted. Investors panicked and started trying to sell stock as quickly as they could. In one day alone, over 16.4 million shares of stock were sold! The market was overwhelmed, and the economy was devastated. Not only did individuals lose everything they had and many companies were forced to close their doors, but these same groups of individuals also lost trust with the entire banking and finance environment.

Government leaders wanted to know why this happened and why so many people lost so much money. In their investigation it was discovered that some of the problems that attributed to the stock market crash came from faulty financial statement reporting. That's why by 1934, the government stepped in and created the Securities and Exchange Commission.

Purpose of the SEC

The SEC was established as a committee to oversee the banking and finance sector of the business world. More importantly, they were charged with regulating the practices of the accounting industry. The number one goal of the SEC is to protect the investors. In order to do this, there has to be true and accurate financial information that's reported on all the financial statements.

To ensure that this occurred, the SEC created yet another organization to focus strictly on the accounting industry. This organization is called the Financial Accounting Standards Board, which is also known as the FASB.

The SEC charged the FASB with creating the guidelines for financial reporting that all accounting professionals must follow in order to produce accurate and reliable financial statements. These guidelines are called the Generally Accepted Accounting Principles, or GAAP for short.

Another organization that was formed by the SEC is the Public Company Accounting Oversight Board, which is also known as the PCAOB. The PCAOB oversees the audits of public companies.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support