Advanced Ch 12: SEC

Information included in Proxy Statements

1. Five-year summary of operations including sales, assets, income from continuing operations, and EPS 2. Description of business activities including products, sources, and raw materials 3. Three-year summary of industry segments, export sales, and foreign and domestic operations 4. Company directors and executives 5. Market price of common stock for each quarter within the two most recent fiscal years 6. Restrictions on the company's ability to pay continuing dividends

Securities Exchange Act of 1934

A federal law dealing with securities regulation that empowered the SEC to regulate and oversee the securities industry. Prohibits fraudulent and unfair behavior including insider trading and sales practice abuses.

Trust Indenture Act of 1939

A federal law that regulates bond offerings by requiring a corporation to appoint a trustee to act for the benefit of the bondholders. Requires registration of trust indenture documents and supporting data in connection with the public sale of bonds, debentures, notes, and other debt securities.

Letter of Comments

A letter from the Securities and Exchange Commission that is sent to a company in response to filing its registration statement, normally indicating needed changes or clarifications in the registration statement

Shelf Registration

A procedure that allows large firms to file one registration statement for several issues of the same security over a period of time without having to seek additional approval by the SEC.

Which of the following is not a way by which the Sarbanes-Oxley Act attempts to ensure auditor independence from an audit client? A. The auditing firm must be appointed by the client's audit committee. B. Audit fees must be approved by the Public Company Accounting Oversight Board. C. The audit committee must be composed of members of the client's board of directors who are independent of the management. D. The external auditor cannot also perform financial information system design and implementation work.

B. Audit fees must be approved by the Public Company Accounting Oversight Board.

Which of the following is a requirement of the Sarbanes-Oxley Act of 2002? A. Registration of all auditing firms with the Public Company Accounting Oversight Board. B. Annual inspection of all auditing firms registered with the Public Company Accounting Oversight Board. C. A monetary fee assessed on organizations issuing securities. D. Overall assessment of the work of the SEC each year.

C. A monetary fee assessed on organizations issuing securities.

Which of the following is not exempt from registration with the SEC under the Securities Act of 1933? A. Securities issued by a government unit B. Securities issued by a nonprofit religious organization C. An offering to 40 sophisticated investors D. A public offering of $40 million to unaccredited investors under Regulation A

C. An offering to 40 sophisticated investors

Public Company Accounting Oversight Board (PCAOB)

Created by SOX to minimize self-regulation in the accounting profession. Members must be prominent individuals of integrity and good reputation and must sever ties with all other business activities to ensure independence. Characteristics/Guidelines: 1. Five members appointed by SEC for staggered five-year terms 2. Only two members are allowed to be accountants, past or present 3. Enforces auditing, quality control, and independence standards and rules 4. Under the oversight and authority of the SEC 5. Funded from fees levied on all publicly traded companies

Regulations S-K

Establishes requirements for all non-financial information contained in filings with the SEC. Information includes company directors, officers, management, management D&A, company financial conditions, etc.

Incorporation by Reference

Filing information with the SEC by indicating that the information is already available in another document

Insider Trading Sanctions Act of 1984 and Insider Trading and Securities Fraud Enforcement Act of 1988

Increase the penalties against persons who profit from illegal use of inside information and who are associated with market manipulations and securities fraud.

Foreign Corrupt Practices Act of 1977

Indirectly affects registration by amending the Securities Exchange Act of 1934; requires maintenance of accounting records and adequate internal accounting controls. This law makes it a crime for U.S. corporations to bribe an official of a foreign government or political party to obtain or retain business.

Investment Advisers Act of 1940 and Securities Investor Protection Act of 1970

Require investment advisers to register and follow certain standards created to protect investors.

Investment Company Act of 1940

Requires an investment company engaged in interstate commerce to register with the SEC.

Securities Act of 1933

Requires registration of new securities offered for public sale so that potential investors can have adequate information. The act is intended to prevent deceit and misrepresentation. SEC role is to ensure that the content and disclosure of company filings comply with all regulations.

Rule 14c-3 of the 1934 Securities Exchange Act of 1934

States that: 1. The annual reports that companies provide to the SEC must be audited. 2. Companies must present balance sheets as of the end of the two most recent fiscal years, along with income statements and cash flow statements for the three most recent fiscal years 3. Additional information from Regulation S-K s/b included in the annual reports

Sarbanes-Oxley Act of 2002

Targeted accounting scandals that came into light in 2001 & 2002. Mandated reforms to bolster corporate responsibility, strengthen disclosure, and combat fraud. Created the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting profession.

Regulation S-X

The SEC accounting requirements for annual and interim financial statements filed under both the Securities Act and the Securities Exchange Act. This document prescribes the form and content of the financial statements, notes, and schedules filed with the SEC.

Prospectus

The first part of a registration statement filed with the SEC, issued as part of a public offering of debt or equity and used to solicit prospective investors in a new security issue containing, among other items, audited financial statements. The Securities Act of 1933 imposes liability for misstatements in a prospectus.

Public Utility Holding Company Act of 1935

Took aim at financial corruption in public utilities industry, outlawing the ownership of utilities by multiple holding companies