Generally, the SEC's accounting division focuses on four specific areas: 

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The SEC continued its involvement in initiatives to ensure independence by auditors of public companies, culminating in the issuance of revised rules that modernize the SEC's auditor independence requirements. The division also took a pro-active role in addressing various accounting financial disclosures and auditor independence issues resulting from the September 11, 2001 terrorist attacks, and they issued a limited number of staff accounting bulletins concerning loan loss allowance methodologies and documentation of an accountant's independence. Essentially, the final revised "independence" rules provide as follows:

The revised independence rules were then supplemented by issuance of a staff guideline covering certain interpretive issues. 

 

The SEC also made it clear that it was no longer relying on the independence standards board ("ISB") for determining issues of auditors' independence with respect to financial statements presented by SEC registrants. The focus will now be on the SEC coordinating with the AICPA's professional ethics executive committee on discrete issues, where appropriate. However, the standards and interpretations previously adopted or issued by the ISB will continue to be considered authoritative to the extent they do not conflict with the SEC's rules and interpretations. Effective July 31, 2001, the ISB discontinued its operations. 

 

On March 4, 2002, in response to the Enron situation, the SEC engaged in a round table discussion with members of the industry and the accounting profession. At that meeting the SEC proposed creation of a private oversight board that would have the authority to discipline accounting firms and their employees. The board, which would be overseen by the SEC, would have the power to investigate wrongdoing and issue penalties, ranging from censures to bans, from the industry in much the same way that the NASD supervises broker-dealers.  

 

Some people think that this proposal is too weak and/or too little, too late. Also, another commentator pointed out that the SEC currently does not have the resources to effectively administer increased financial disclosures.

 

The second area emphasized by the new Chairman of the SEC is a proposed set of SEC proposals to overhaul the rules on how companies disclose information to investors, including revisions to the MD&A sections of filings made with the SEC, as well as more frequent SEC filings to disclose material events and more timely reports of insider stock trades. Warren Buffett has commented that the real problem is not the quantity of disclosure, but the quality of the disclosure and he suggests that the CEO write an MD&A, "as though it is a letter to a partner who has been away for a year."  

 

Both the House and Senate Republican leaders separately proposed substantive changes in corporate disclosure, accountants' oversight and insider trading reporting as a reaction to the Enron collapse. Both proposed bills adopt the SEC proposal of an audit oversight board and specifically prohibit accounting firms from offering certain types of consulting services to companies they are also auditing. In particular, these consulting services would include financial information, system design, implementation services or internal audit services.  The proposals also contain provisions directed towards full disclosure of off-balance sheet transactions and more prompt reporting of insider sales. 

 

The SEC and four federal banking agencies completed their guidance on the documentation of loan loss allowances and issued a new provision providing guidance to registrants to assist them in improving their systematic methodologies for estimating loan loss allowances and the appropriate supporting documentation. However, according to the SEC, this does not change existing rules on accounting for loan loss allowances or provisions and emphasizes that its prior Financial Reporting Release No. 28 is still in effect. 

 

The SEC continued its oversight of the FASB process and throughout the year coordinated with various FASB committees and units to attempt to ensure that the financial disclosure process is operating in an open, fair and impartial manner, and whether each standard is within the acceptable range of alternatives that serves the public interest and protects investors. In the SEC's 2001 Annual Report, it lists the following oversight activities in which it participated. 

The SEC also exercised its oversight function with respect to various activities of the accounting standards executive committee, including issuing a proposed statement of position on the appropriate accounting for certain costs and activities relating to property, plant and equipment. In its oversight function, the SEC also monitored the activities of the Panel on audit effectiveness and the Auditing Standards Board established by the AICPA. Furthermore, the SEC was involved in the process by which the AICPA sets the guidelines for quality control and peer review. 

 

In summary, in addition to its specific regulatory function of controlling accounting disclosure and reporting issues in filings by companies with the SEC, the SEC's accounting division, through its oversight function, is in a position to influence and monitor almost all aspects of the financial accounting for public companies. In many instances, standards that relate to financial disclosures for public companies become part of the accounting requirements for all companies.