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Securities Exchange Commission (FASB) And The American Institute Of Certified Public Accountants

786 Words4 Pages

The Securities Exchange Commission (SEC), Financial Accounting Standards Board (FASB), and the American Institute of Certified Public Accountants (AICPA) all have an interesting relationship with each other. The SEC has the legal authority to the set standards of accounting in the United States, but has delegated that authority to the FASB. And the American Institute of Certified Public Accountants dictates the conduct of certified public accounts that practices their profession utilizing the laws and principles formed by the Securities Exchange Commission and Financial Accounting Standards Board. Organizations use these three authorities often to present to third parties their financial information. Accountants prepare financial statements in accordance with GAAP, …show more content…

As the United States’ stock market crashed, so did the American public’s trust. “Investors large and small, as well as the banks who had loaned to them, lost great sums of money in the ensuing Great Depression.” (www.sec.gov). In order to revive the market and American’s confidence, Congress passed the Securities Act of 1933, the Securities Exchange of 1934, and ultimately formed the Securities Exchange Commission. This piece of legislation was the first of many to prevent fraudulent activities, provide third parties accurate financial information, monitor the market, and create rules and regulations for trading. (www.sec.gov). The SEC has five commissioners that are appointed by the president of the United States. The President also delegates one of the five commissioners as Chairman of the commission. The SEC is further broken down into five divisions and twenty-three offices; all of which work together to facilitate capital formation while enforcing laws, and protecting investors. The SEC also works with other agencies like congress, the stock exchange, Federal Reserve, and the Financial Accounting Standards

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Although the 1920’s were booming and prosperous, the United States soon entered a prolonged economic depression. In October of 1929, prices in the stock market began an uneven downward slide (Document 2). As investors decided that the previous boom in the stock market was over, they sold more stock, thus causing the declination to increase even further. Many citizens of the United States were greatly affected by this. Families who had invested in stock lost most, if not all, or their life savings.

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The stock market crash was a huge catastrophe that affected millions of Americans, even those not involved in the stock market, “[The crash] came suddenly, and violently, after holders of stocks had been lulled into a sense of security” (Document 1). After a huge drop in stock prices, many stock owners sold their stock in fear of losing money. The stock market was down $14 million, which even today is a very substantial number. FDR saw the issue in this, and immediately worked to eliminate the issue as well as prevent it for future generations. The Federal Securities Act of 1933, mandating that all companies selling stock provide proof of their company’s worth, and the Securities Exchange Commission of 1934, monitoring the stock market to ensure no one corrupts the stock market, allowed stock to be sold and bought safely once

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After five days, people were panicking and more 16 million shares were sold. But all of those shares were worthless, and investors who bought stocks with borrowed money were ruined. In 1934, a New Deal program, the Securities and Exchange Commission (SEC) was created. The SEC adjusted the securities market, (Doc. 10) and investors in U.S security markets were better protected from fraud. The Banking Act of 1933, created the Federal Deposit Insurance Corporation (FDIC), that gave depositors a scape when a bank fails, and authorized branch banking (Doc. 10).

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The stock market was just taking off; it was a new method to earning money quickly. Businesses, companies themselves, and individuals tried to convince the public that the stock market was a safe investment. The sneaky business of the market by businessmen caused a further loss, previous to the crash of the market. By convincing the public to invest in stocks, they had prepared

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In the time of 1929 to 1939 the U.S. was in a consistent condition of financial melancholy that began with money markets accident in 1929. The general population of the U.S. was in a surge not to lose their reserved funds, individuals would settle on flurry choices to pull back their cash before the banks would close. The inquiry that people in general more than once tended to Roosevelt was the way to take the economy back to a viable monetary state. President Roosevelt requested the Securities Act of 1933 “to bring order out of chaos” as Roosevelt expressed in a presidential location. (Hamen 34 - 41) (“Franklin Roosevelt”)

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It only got worse after that, almost everyone was affected by the stock market crash, despite the fact that most people only thought it would affect the wealthy who made their fortunes from businesses and the stock market. At the time, politicians and citizens blamed bank brokers for deceiving investors by selling stocks at high prices. ”The stock market crash crippled the American economy because not only had individual investors put their money into stocks, so did businesses. When the stock market crashes, businesses lose their money. Consumers also lost their money because many banks had invested their money without their permission or knowledge.

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This could be speculation as many of the government officials that had worked for the FEDs, that was in charge of the market and regulation on the market had known of the possible risk at the beginning of 1929, almost 6-8 months before the market had crashed in October. The federal reserve was the main government agency that had been involved in the stock market crash. This agency had been in charge of the money supply and the banking industry system. Throughout this paper, there will be around four points made about the FEDs being involved in the market crash, Speculation denial by the FEDs, the over-burrowing allowed by banks, and the broker strategy that led to their own

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The two acts that where created by federal legislators in reaction to the Stock Market Crash of 1929, were the Securities Act of 1933 and the Securities Exchange Act of 1934. The Securities Act of 1933 was designed to help make investments better by requiring the disclosure of all financial and other significant information concerning securities sales, and demanded no deception or misrepresentation of such sales. The Securities Exchange Act of 1934 oversaw and regulated the trading of stocks, bonds, and other security sales. This allowed for the investor to have more confidence in trading with certain sales. I think the measures that were taken by the Securities Act of 1933 and the Securities Exchange Act of 1934 were good, and

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The end of World War One meant the U.S. troops who had been fighting overseas returned to America as war heroes while settling back into the workforce. At that time, businessmen in America had figured out they could purchase large amounts of stock. This gave the lower and middle-class citizens a false sense of security to purchase the same stock. The businessmen using their power over the stock market would then sell off their stock leaving the lower and middle-class investors holding worthless stocks. Without regulation, this practice was repeated numerous times until finally the market could no longer protect the businessmen resulting in the Great Crash of 1929.

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The Securities Act of 1933 was the first major federal law regarding the sale of securities (i.e. stocks and bonds). This law was a response to the stock market crash of 1929. Prior to this law, the sale of securities was primarily governed by state laws. The Securities Act of 1933 is often referred as the "truth in securities" law. Its dual objectives is to ensure that issuers selling securities to the public must disclose material information to investors; and that any securities transactions are not based on deceit, misrepresentation and fraudulent information or practices (U.S. Securities and Exchange Commission, 2011).

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What made everyone trust in it so much was that they could invest in stocks by buying “on margin.” “…an investor could make a small down payment (the “margin”) on shares of stock and borrow the rest from a stockbroker, who held the stock certificates as security in case the price plummeted.” (Shi and Tindall 1093). Sadly, if there was a negative outcome on the stock price, such as a declining, then the buyer would not be able to pay the margin all and the stock would be sold at a lower price. Although the stock market was an amazing project, the economy saw itself getting slower and poorer.

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Between 1924 and 1929, the values of stocks skyrocketed. Many Americans were still hopeful in their “get rich quick” mindset and were actively buying stocks on margin. October 29, 1929 marked the beginning of a six-month period which the stock market lost six-sevenths of its total value (Roark). In November of 1929, President Hoover implemented a “voluntary plan for recovery: Businesses would maintain production and keep their workers on the job; labor would accept existing wages, hours, and conditions,” (Roark). But, the bargain was of no avail.

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Speculation was a huge factor in causing the stock market crash of 1929 as it meant that people were to buy stocks of large risks and regular people were able to buy stocks that they couldn’t afford by being able to borrow large amounts of money from banks. Secondly, individual manipulation of the stock market was a significant factor in causing the depression as the wealthy would buy a large amount of shares, increasing the stock price and selling all the shares. This caused an unfair distribution of wealth as the rich stayed rich and the poor stayed poor. This problem was solved by issuing the Emergency Banking Crisis in 1933 and Security Exchange Commission in 1934. The Securities Exchange Commission provided a framework which tacked speculation

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