What role does the SEC play in relation to financial reporting?

The SEC, or Securities and Exchange Commission, plays a crucial role in ensuring transparency and integrity in the financial reporting of public companies. One of its primary responsibilities is administering the Securities Exchange Act of 1934, which was established to regulate the securities industry and protect investors by requiring companies to provide accurate and timely information.

By overseeing compliance with Generally Accepted Accounting Principles (GAAP), the SEC ensures that public companies adhere to standardized accounting practices, which promotes consistency and comparability in financial statements. This oversight helps to build investor trust and maintain orderly markets. The SEC does not create financial statements itself; instead, it mandates that companies disclose their financial condition and results of operations in accordance with established accounting rules.

While the SEC does play a role in regulating aspects of the stock market, such as preventing fraud and maintaining fair trading practices, its primary focus regarding financial reporting is on compliance and disclosure rather than on pricing or conducting audits. Audits of public companies are typically performed by independent auditors, not the SEC. Thus, the correct answer highlights the SEC's pivotal function in enforcing financial reporting standards and facilitating investor protection through compliance oversight.