The Securities and Exchange Commision staff has ordered FannieMae, the nations's largest mortgage company, to restate its lastfour annual reports. The SEC chief accountant announced that thecompany's accounting practices for 2001 through mid-2004 "did notcomply in mateial respects" with accounting rules related to loans.The company has been accused of deliberately violatng accountingrules to smooth earnings, meet financial projections,and increasebonuses for senior executives. News reports indicate the companyintends to comply with the SEC ruling.
Source: TheStreet.com (15 December 2004).
A. What is the SEC? What is its mission?
B. If a company's management believes they have reportedearnings in a meaningful way, why can the SEC force them to restateearnings?
C. If management issued misleading financial informationm, dothe shareholders have a reason to be upset with the company?Explain.