THE SEC'S ANNUAL REPORT TO CONGRESS
By William J. Coffey and
Since its inception in 1934, the SEC has continued to issue a comprehensive report on its activities for the prior year. This informative publication is available from any U.S. Government Printing Office Bookstore for $11.50. In its easy-to-use format, you can find the issues Corporation Finance has targeted for review or how many cases were brought by the Division of Enforcement alleging misconduct by accountants. All information concerning cities in which the SEC maintains reference facilities open to the public are easy to find in this
The current annual report is divided into 13 sections, beginning with introductory material on the commission, staff, and five regional and six district offices. A biography of each commissioner is presented, including one of Chairman Levitt.
The ensuing eleven sections report on the various divisions and offices: enforcement, international affairs, investor education and assistance, market regulation, investment management, compliance, corporation finance, Chief Accountant, General Counsel, municipal securities, economic analysis, and policy management and administrative support. For example, the subsection on administrative support describes the activities of
An appendix filled with tables, graphs, and charts rounds out the report. Need a copy of the SEC organizational chart? It is on the last page, 214. Wondering whether the SEC drains or contributes to the U.S. Treasury? Table 24 illustrates that for the fourteenth consecutive year, the SEC has been a net contributor, providing over $475 million to the Treasury in 1996. Total fees exceeded $770 million--over 200% of the SEC's appropriated spending authority.
Three operating departments covered in the annual report are of particular interest to accountants: the Division of Corporation Finance (Corp Fin), the Office of the Chief Accountant, and the Division of Enforcement.
Generally, accountants will be more likely to deal with Corp Fin than with other divisions of the commission. The full disclosure system, administered by Corp Fin, provides staff review of registration statements and periodic reports filed by registrants. The resulting letters of comment sent to issuers may include guidance as to financial accounting and reporting. Ordinarily, a registrant's independent accountants will be consulted in formulating the proper response to the staff's accounting comments.
Registration Activity. The 1996 report provides dollar value pie-chart comparisons with 1995's charts of registration statements filed with the commission. The two charts show debt, equity, asset backed, and shelf registrations for both years, and reveal some interesting trends. A record $1.2 trillion in securities were filed for registration during the year, a 45% increase over 1995. IPO offerings in 1996 were more than twice the level of 1995.
As a percentage of the total amount registered, common stock rose to 58% from 48% in 1995. Both shelf offerings and debt equity were down in 1996 as compared to the amounts offered in these categories in 1995.
Staff Review. Compared to 1995, the staff reviewed more filings by new issuers, but the number of reporting issuer reviews dropped slightly. New issuer reviews, where nonreporting companies file a Securities Act or Exchange Act registration statement during the year, increased 44% to 1,658 from 1,150 in 1995. Reporting issuer reviews, which consist of the review of any combination of, among others, annual reports, quarterly reports, proxies, and Securities Act registrations, dipped 18% to 3,210 from 3,930 in 1995.
Corp Fin continued to target for review derivative securities and other financial instruments. The commission proposed amendments that require issuers to make information related to derivative commodity instruments more useful to investors. The amendments also help to clarify and expand existing financial footnote disclosure requirements about accounting policies for derivatives and require disclosures outside the financial statements of qualitative information about the risk inherent to these instruments. In Release No. 33-7280 (Apr. 9, 1996), 61 SEC Docket 14, the commission proposed a safe harbor for the new derivatives disclosure that constitutes forward-looking information.
The Commission's Internal Task Force continued its sweeping reexamination of the regulatory framework for the offer and sale of securities. As a result, the task force recommended the elimination of 81 rules and 22 forms as well as the modification of many others. In total, the task force proposed the elimination or revision of approximately one-quarter of the rules and one-half of the forms it reviewed.
International Initiatives. U.S public markets continued to see strong participation of foreign companies in 1996. During the year, 136 companies from 30 countries filed here for the first time. Total registered public offerings by foreign issuers during 1996 reached $78 billion, and at year-end over 843 companies were filing reports with the SEC. In 1996, the commission continued its initiative to simplify its reporting and registration procedures for foreign issuers.
EDGAR. The phase-in of all domestic filers to EDGAR (Electronic Data Gathering, Analysis, and Retrieval System) was completed in 1996. In September 1996 the commission issued an EDGAR recompetition notice that detailed the SEC's efforts to privatize this system. Among the greatest challenges in the years ahead are those dealing with technology. In just one year, the SEC's home page has become one of the most popular government sites on the World Wide Web. The EDGAR database of corporate information is due for a major overhaul by 1997.
Office of the Chief Accountant
As the principal advisor to the commission on accounting and auditing matters, the Chief Accountant makes recommendations to the commission designed to achieve compliance with accounting and financial disclosure requirements of the Federal securities laws. Thus, the SEC is responsible for rule making and
Staff Accounting Bulletins. The Chief Accountant's office frequently publishes unofficial interpretations on accounting issues through Staff Accounting Bulletins (SABs).
For example, SAB No. 96 was issued to provide guidance regarding the effect of treasury stock acquisitions following a business combination accounted for under the pooling of interests method. This SAB was issued to alert registrants that the intention to reacquire stock to carry out a business combination represents a planned transaction that would preclude accounting for the combination as a pooling of interest.
SAB No. 97, also issued in 1996, clarifies the accounting for the transfer of nonmonetary assets in exchange for a company's stock during the period of an initial public offering; guidance originally published in SAB No. 48 was inappropriately applied by some registrants to business combinations.
Oversight of Private-Sector Activities. An important function in the mission of the Chief Accountant's Office is the oversight of private-sector standard-setting organizations. The staff worked with the Financial Accounting Standards Board (FASB) in the areas of derivatives, establishing standards for reporting and financial presentation of comprehensive income, and accounting for obligations related to the closure and removal of long-lived assets; with the Emerging Issues Task Force (EITF) on its continuing effort to identify and resolve accounting issues; with the Accounting Standards Boards (ASB) on audit risk alerts;
Concerned with the consistency and quality of practice before the commission, the SEC staff, in coordination with the Public Oversight Board (POB), continually reviews the quality-control activities of the accounting profession. A random sample of peer reviews is selected each year for staff review, including the peer reviewer's workpapers and the POB's oversight file. All closed-case summaries prepared by the Quality Control Inquiry Committee (which investigates allegations of audit failure in the audits of public companies) are reviewed by the SEC staff.
International Activities. The SEC continued its active participation in initiatives designed to reduce differences in accounting and auditing standards among countries. To achieve this goal, the SEC and other members of the International Accounting Standards Committee (IASC) and the International Organization of Securities Commissions (IOSCO) agreed to draft a blueprint to identify projects that will help form a foundation for international accounting standards to allow for cross-border securities offerings. As a result of this effort, a final standard was issued for income taxes [IAS 12 (revised 1996), Income Taxes (Oct. 1996)]. In addition, exposure drafts on segment reporting, earnings per share, presentation of financial statements, and employee benefits were issued for comment in 1996.
Also in 1996, the SEC and the FASB participated in a joint project with the Canadian Institute of Chartered Accountants in issuing an exposure draft considering current reporting requirements under SFAS No. 14, Financial Reporting for Segments of a Business Enterprise.
In 1996, the Division of Enforcement initiated a total of 453 enforcement actions. The SEC obtained civil penalties exceeding $67 million plus court orders for disgorgement of $325 million in ill-gotten gains. However, some payments were waived where defendants could show inability to pay. The commission itself does not have the power to bring criminal actions, but during the year authorities working on commission-related cases won 57 convictions. The SEC opened its files to prosecutors on 229 occasions.
The Annual Report includes a summary of the more significant cases with endnotes that provide a reference to the related releases. Anyone seeking further information on SEC enforcement activity can consult Table 2 of the Appendix, which provides the case, release number, and date filed, organized by category of violation. *
William J. Coffey, PhD, CPA, and Lewis Schier, PhD, are professors of accounting at Pace University.
Gary Illiano, CPA
©2009 The New York State Society of CPAs. Legal Notices
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