Which financial reporting framework is typically enforced by the SEC?

The financial reporting framework typically enforced by the SEC is accrual accounting. This method recognizes income and expenses at the time they are incurred, rather than when cash is exchanged. This approach provides a more accurate picture of a company's financial position and performance because it aligns revenue with the expenses incurred to generate that revenue, thus matching income to the period in which the business activity occurs.

Accrual accounting is important for public companies as it ensures that financial statements reflect their operational realities, which aids investors, regulators, and stakeholders in making informed decisions based on the company's financial health. The SEC mandates this framework for the sake of transparency and consistency in how financial information is reported.

Cash accounting, while simpler, records transactions only when cash changes hands. This can result in misleading financial statements since it may not accurately represent the company’s obligations and resources at any given time. Single entry accounting is a basic recording system that does not provide a comprehensive view of financial health and is usually unsuitable for larger, publicly traded companies. Informal accounting lacks the rigor and standardization necessary for SEC compliance, making it insufficient for financial reporting purposes.