Financial Accounting and Reporting-CPA Practice Exam

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Prepare for the CPA Financial Accounting and Reporting exam. Utilize flashcards and multiple-choice questions, with hints and explanations for each. Start your study journey today!

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What is the primary purpose of the Securities and Exchange Commission (SEC)?

  1. To eliminate all public companies

  2. To issue accounting rules and regulations

  3. To regulate tax collection processes

  4. To promote international financial standards

The correct answer is: To issue accounting rules and regulations

The primary purpose of the Securities and Exchange Commission (SEC) is to issue accounting rules and regulations that govern financial reporting and disclosure for publicly traded companies. This responsibility includes overseeing the adherence to generally accepted accounting principles (GAAP) and ensuring that companies provide transparent and reliable financial information to investors and the public. By establishing these standards, the SEC aims to protect investors, maintain fair and efficient markets, and facilitate capital formation. The SEC also plays a critical role in the enforcement of securities laws, which includes monitoring corporate financial practices, conducting investigations, and bringing sanctions against violators. This regulatory framework is essential for maintaining investor confidence and ensuring that the financial markets operate smoothly, thereby supporting the economic system. Other options do not align with the SEC's core functions. For instance, eliminating public companies contrasts with the SEC’s mission, as it promotes the existence of public companies while ensuring proper oversight. Regulating tax collection processes specifically falls under the jurisdiction of the Internal Revenue Service (IRS) and not the SEC. The promotion of international financial standards may involve various organizations but is not a primary focus of the SEC, which is primarily concerned with domestic financial markets and companies.