The Securities Act of 1933 requires that, prior to the offering or sale of securities, the issuer must register the securities offering with the SEC by filing a registration statement. The registration statement must contain financial and other material information concerning the securities and the issuer. The SEC’s DCF oversees the disclosure of information, which is required by federal securities laws, to the investing public. OCA encourages registrants to consult on those financial reporting and auditing issues that involve unusual, complex, or innovative transactions for which no clear authoritative guidance exists. We also interviewed representatives from SEC registrant companies to obtain their views on the SEC’s process for handling accounting issues. FEI advised us that they did not have official comments on this report. Examples of the type of accounting issues frequently reviewed include business combination issues, such as the application of the pooling versus purchase methods of accounting and complex issues surrounding revenue recognition and financial instruments. Representatives of registrants and the accounting profession expressed a need for additional information regarding the following:   general status information, including time estimates for resolving issues and status of the review;   how accounting issues are assigned to SEC staff members;   how OCA consults with standard-setting bodies and other large accounting firms, including how OCA ensures that information presented in these consultations is unbiased and how the results of consultations are used in resolving issues; the SEC’s approval processes for determining whether registrant restatements are necessary;   how OCA coordinates with DCF, including how OCA and DCF minimize duplication of information requested from the registrants and auditors; and   OCA’s final position on accounting issues.
Why GAO Did This Study

This report reviews the Securities and Exchange Commission's (SEC) resolution of accounting issues submitted by companies that have or are contemplating publicly traded securities.

What GAO Found

Companies are required by law to register their securities with SEC by filing a registration statement. This statement must contain financial and other information on the securities and the issuer. SEC's Office of the Chief Accountant (OCA) is responsible for providing guidance to companies to ensure that they comply with the reporting requirements of the law. Generally, registrants submit issues to OCA for which there is no authoritative guidance. These issues tend to involve unusual, complex, or innovative transactions. Some of the accounting issues frequently reviewed include business mergers and issues surrounding revenue recognition and financial instruments. Representatives of registrants and the accounting profession have had both positive and negative experiences with SEC's handling of accounting issues. Several representatives expressed concerns over the transparency of SEC's decision making process and SEC's use of accounting sources outside of generally accepted accounting procedures.