Financial Accounting and Reporting-CPA Practice Exam

Which piece of legislation established the Securities and Exchange Commission in 1934?

1. Securities Exchange Act

2. Financial Accounting Standards Act

3. Accounting Reform Act

4. Public Company Accounting Reform Act

The correct answer is: Securities Exchange Act

The establishment of the Securities and Exchange Commission (SEC) in 1934 was mandated by the Securities Exchange Act. This legislation was a pivotal response to the stock market crash of 1929 and the ensuing Great Depression. The SEC was created to regulate and oversee the securities industry, protect investors, maintain fair and efficient markets, and facilitate capital formation. By instituting the SEC, the Securities Exchange Act aimed to promote transparency and prevent fraudulent practices in the securities markets. The other options refer to legislation that either does not exist or is not directly related to the formation of the SEC. For instance, the Financial Accounting Standards Act is not a recognized piece of legislation; similarly, the Accounting Reform Act and the Public Company Accounting Reform Act relate more to subsequent reforms in accounting practices and regulations, particularly after corporate scandals in the early 2000s, rather than the original establishment of regulatory bodies like the SEC. Thus, the Securities Exchange Act stands as the cornerstone of regulatory oversight in the United States, forming the basis for the SEC's operations and objectives.