Chapter 12 - Quizlet

Form 10-Q

contains condensed interim financial statements for the registrant and must be filed with the SEC shortly after the end of each quarter. Does not have to be audited by an independent CPA firm

Proxy Statement

most of the significant actions undertaken by a company first must be approved at stockholder's meetings. Example: board of directors elections. Although such votes are essential to the operations of a business, few major companies could possibly assemble enough shareholders at any one time and place for a voting quorum. Hence, before each of the periodic meetings, the management (or any other interested party) usually requests signed proxies from shareholders granting the legal authority to cast votes for the owners in connection with the various actions to be taken at such stockholder's meetings

letter of comments

requests for clarifications, changes, or additional information (by the SEC)

Form 10-K

this is an annual report filed with the SEC to provide information and disclosures required by Regulation S-K and Regulation S-X; fortunately, because of the integrated disclosure system, the annual report distributed by companies to their stockholders now includes most of the basic financial disclosures required by the SEC in this form

Form 8-K

this is used to disclose a unique or significant happening; it is not filed at regular time intervals but within 15 calendar days of the event (or within 5 business days in certain specified instances)

What information needs to be included in Form 10-Q? 1) Income statements for the most recent quarter and for the year to date as well as for the comparative periods in the previous year. (2) Income statements for the most recent quarter and for the year to date as well as for the comparative periods in the previous two years. (3) A statement of cash flows is necessary, but only for the year to date as well as for the corresponding period in the preceding year. (4) Two balance sheets:one for the end of the most recent quarter and one showing the company's financial position at the end of the previous fiscal year

1, 3, and 4.

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

How has the SEC exercised its power with regard to the continuing evolution of accounting principles?

1. Issuing Financial Reporting Releases (FRRs). 2. Requiring additional disclosures in notes to financial statements. 3. Declaring a moratorium on the use of specified accounting practices. 4. Overruling the FASB. - 1, 2, 3, and 4.

A proxy statement must be filed with the SEC at least how many days before being distributed?

10 days.

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

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

Which information is not contained in the prospectus of the registration statement?

A listing of directors and executive officers

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. Overall assessment of the work of the SEC each year. C.A monetary fee assessed on organizations issuing securities. D.Annual inspection of all auditing firms registered with the Public Company Accounting Oversight Board.

A monetary fee assessed on organizations issuing securities. Not all auditing firms are required to register with the PCAOB, only those firms that prepare, issue, or participate in the preparation of an audit report for an issuer. Issuers do incur additional fees as a result of SOX

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.

What is private placement of securities?

A procedure that allows the sale of securities to no more than 35 sophisticated knowledgeable investors, with no general solicitation allowed.

Which of the following must be provided to every potential buyer of a new security? A. A prospectus. B. A letter of comments. C.A deficiency letter. D.A Form S-16.

A prospectus. Recall that the letter of comments/deficiency letter relate to the SECs response subsequent to an issuers filing of a registration statement.

What is a registration statement? A. A filing made by a company with the SEC to indicate that a significant change has occurred. B. An annual filing made with the SEC. C.A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public. D.A required filing with the SEC before a large amount of stock can be obtained by an inside party.

A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public. The 1933 Act deals with the requirements for registration of a security prior to its initial offering.

What is a letter of comments? a. A letter the SEC sends to a company indicating needed changes or clarifications in a registration statement b. A questionnaire supplied to the SEC by a company suggesting changes in Regulation S-X c. A letter included in a Form 10-K to indicate the management's assessment of the company's financial position d. A letter composed by a company asking for information or clarification prior to the filing of a registration statement

A. (A letter the SEC sends to a company indicating needed changes or clarifications in a registration statement)

The Securities and Exchange Act of 1934 a. Regulates the public trading of previously issued securities through brokers and exchanges b. Prohibits blue sky laws c. regulates the initial offering of securities by a company d. requires the registration of investment advisers

A. (Regulates the public trading of previously issued securities through brokers and exchanges)

What is a registration statement? a. a statement that must be filed with the SEC before a company can begin an initial offering of securities to the public b. a required filing with the SEC before a large amount of stock can be obtained by an inside party c. an annual filing made with the new York Stock Exchange d. a filing made by a company with the SEC to indicate that a significant change has occurred

A. (a statement that must be filed with the SEC before a company can begin an initial offering of securities to the public)

Which of the following is not a security as defined by the SEC?

Accounts receivable

The prospectus part of a registration contains all except which of the following?

Additional data concerning expenses of issuance

A wraparound filing

Allows a company to simplify its periodic filing by attaching its annual report to Form 10###K.

Which statement is false regarding the Public Company Accounting Oversight Board (PCAOB)?

Allows all members to be accountants, past or present

What is Form 10-K?

An annual report filed with the SEC.

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. A public offering of $40 million to unaccredited investors under Regulation A. C.Securities issued by a nonprofit religious organization. D.An offering to 40 sophisticated investors.

An offering to 40 sophisticated investors. NFP organizations' securities (debt) are exempt from the registration requirement as are governmental securities (for instance municipal bonds). Revised Regulation A now has registration exemptions for up to $50 million of securities. The Securities Act of 1933 does not provide for exemption for offerings to 40 sophisticated investors.

Which of the following is usually not filed with the SEC on a regular periodic basis? a. A Form 10-Q b. A prospectus c. A proxy statement d. A Form 10-K

B. (A prospectus)

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 PCAOB 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 PCAOB)

What is the purpose of Regulation S-K? a. Defines generally accepted accounting principles in the US b. establishes required disclosure of nonfinancial information with the SEC c. Establishes required financial disclosures with the SEC d. indicates which companies must file with the SEC on an annual basis.

B. (establishes required disclosure of nonfinancial information with the SEC)

What does the term incorporation by reference mean? a. the legal incorporation of a company in more than one state b. filing information with the SEC by indicating that the information is already available in anther document c. a reference guide indicating informational requirements specified in Regulation S-X d. incorporating a company in a state outside of its base of operations

B. (filing information with the SEC by indicating that the information is already available in anther document)

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 not exempt from registration with the SEC under the Securities Act of 1933? a. Securities issued by a nonprofit religious organization b. Securities issued by a government unit c. A public offering of no more than $5.9 million d. An offering made to only 26 sophisticated investors

C. (A public offering of no more than $5.9 million)

What is a shelf registration? a. A registration statement that the SEC formally rejects b. A registration statement that the SEC rejects due to the lapse of a specified period of time c. A registration process for large companies that allows them to offer securities over a period of time without seeking additional approval by the SEC d. A registration form that is withdrawn by the registrant without any action having been taken

C. (A registration process for large companies that allows them to offer securities over a period of time without seeking additional approval by the SEC)

What is EDGAR? a. A system the SEC uses to reject registration statements that do not contain adequate information b. The enforcement arm of the SEC c. A system designed by the SEC to allow electronic filings d. A branch of the government that oversees the work of the SEC

C. (A system designed by the SEC to allow electronic filings)

What is the difference between Regulation S-K and Regulation S-X? a. Regulation S-K establishes reporting requirements for companies in their initial issuance of securities whereas Regulation S-X is directed toward the subsequent issuance of securities b. Regulation S-K establishes reporting requirements for companies smaller than a certain size whereas Regulation S-X is directed toward companies larger than that size c. Regulation S-K establishes regulations for nonfinancial information filed with the SEC whereas Regulation S-X prescribes the form and content of financial statements included in SEC filings d. Regulation S-K establishes reporting requirements for publicly held companies whereas Regulation S-X is directed toward private companies

C. (Regulation S-K establishes regulations for nonfinancial information filed with the SEC whereas Regulation S-X prescribes the form and content of financial statements included in SEC filings)

Which of the following is a requirement of the Sarbanes-Oxley Act of 2002? a. registration of all auditing firms with the PCAOB b. annual inspection of all auditing firms registered with the PCAOB 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 must be provided to every potential buyer of a new security? a. a letter of comments b. a deficiency letter c. a prospectus

C. (a prospectus) d. a form S-16

Which of the following is not correct with regard to the PCAOB? a. the board can expel a registered auditing firm without SEC approval b. all registered auditing firms must be inspected at least every three years c. the board members must be appointed by Congress d. the board has the authority to set auditing standards rather than utilize the work of the Auditing Standards Board

C. (the board members must be appointed by Congress)

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

The goals of the SEC include all except which one of the following

Controlling the number of companies whose stock is listed on major stock exchanges

Which of the following is a registration statement used by large companies that already have a significant following in the stock market? a. Form 8-K b. Form 10-K c. Form S-1 d. Form S-3

D. (Form S-3)

Which of the following statements is true? a. The Securities and Exchange Act of 1934 regulates intrastate stock offerings made by a company b. The Securities Act of 1933 regulates the subsequent public trading of securities through brokers and markets c. The Securities Exchange Act of 1934 is commonly referred to as blue sky legislation d. The Securities Act of 1933 regulates the initial offering of securities by a company.

D. (The Securities Act of 1933 regulates the initial offering of securities by a company)

What was the significance of the controversy in 1977 over the appropriate accounting principles to be used by oil- and gas-producing companies? a. several major lawsuits resulted b. companies refused to follow the SEC's dictates c. Partners of a major accounting firm were indicted on criminal charges d. the SEC overruled the FASB on its handling of this matter

D. (the SEC overruled the FASB on its handling of this matter)

What is a prospectus? a. a document attached to a Form 8-K b. a potential stockholder as defined by Regulation S-K c. a document a company files with the SEC prior to filing a registration statement d. the first part of a registration statement that a company must furnish to all potential buyers of a new security

D. (the first part of a registration statement that a company must furnish to all potential buyers of a new security)

The SEC has usually restricted its role in establishing accounting principles to

Determining required disclosures

EDGAR stands for:

Electronic Data Gathering, Analysis, and Retrieval System.

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.

Regulation S-K:

Establishes requirements for nonfinancial information to be filed with the SEC.

Which of the following are issued by the SEC, as needed, to supplement Regulation S-X and Regulation S-K?

FRRs

Incorporation by Reference

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

What does the term incorporation by reference mean? A. Incorporating a company in a state outside of its base of operations. B. A reference guide indicating informational requirements specified in Regulation S-X. C.Filing information with the SEC by indicating that the information is already available in another document. D.The legal incorporation of a company in more than one state.

Filing information with the SEC by indicating that the information is already available in another document. This is a useful approach to referencing data which has already been provided to the SEC, or other agency, so that the data is not redundantly produced.

Which statement is false regarding the registration of public accounting firms with the PCAOB?

Foreign accounting firms are exempt from registration.

Which of the following is a registration statement used by large companies that already have a significant following in the stock market? A. Form 10-K. B. Form S-3. C.Form S-1. D.Form 8-K.

Form S-3. S-3 is the form for registering securities if/when the issuer already has a significant public market following. The issuer will likely also file forms 8-K and 10-K, but those are not registration statements.

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.

Which one of the following is not a characteristic of the Public Company Accounting Oversight Board?

Only one member can be an accountant, past or present

The SEC's operating costs are supported through

Registration fees from issuers offering securities to the public.

. Filings with the SEC are divided generally into two broad categories:

Registration statements and periodic filings.

The Securities Exchange Act of 1934 A. Prohibits blue sky laws. B. Regulates the initial offering of securities by a company. C.Regulates the public trading of previously issued securities through brokers and exchanges. D.Requires the registration of investment advisers.

Regulates the public trading of previously issued securities through brokers and exchanges. Remember that the 1933 Act deals with Registration and the 1934 Act deals with Regulation.

What is the difference between Regulation S-K and Regulation S-X? A. Regulation S-K establishes reporting requirements for companies smaller than a certain size whereas Regulation S-X is directed toward companies larger than that size. B. Regulation S-K establishes reporting requirements for publicly held companies whereas Regulation S-X is directed toward private companies. C.Regulation S-K establishes reporting requirements for companies in their initial issuance of securities whereas Regulation S-X is directed toward the subsequent issuance of securities. D.Regulation S-K establishes regulations for nonfinancial information filed with the SEC whereas Regulation S-X prescribes the form and content of financial statements included in SEC filings.

Regulation S-K establishes regulations for nonfinancial information filed with the SEC whereas Regulation S-X prescribes the form and content of financial statements included in SEC filings. Regulation S-K addresses non-financial information filed with the SEC while Regulation S-X addresses the form and content of financial documentation filed with the SEC.

What is a primary focus of the Sarbanes-Oxley Act?

Regulation of independent audit firms and audit standards

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.

Which one of the following is not a prescribed event for the filing of Form 8-K?

Resignation of a middle manager

Lechter Co. is preparing to issue stock. Its revenues for last year were $85,000,000, and it had $52,000,000 in stock held by non-affiliates. The company had been filing with the SEC for two years. Which one of the following forms should have been used for registration?

S-1

Which of the following forms is used in connection with registration of securities of a small reporting company with $25 million of annual revenues and of $25 million of voting securities held by non-affiliates?

S-1

Which one of the following forms is used when no other form is prescribed

S-1

Which one of the following forms is used when companies have filed with the SEC for less than 36 months but are not large enough to file form S-3?

S-1.

Which of the following forms is used in connection with registration of securities by certain real estate companies?

S-11

Which one of the following registration statement forms is used by large issuers that already have at least $75 million voting stock held by non-affiliates?

S-3.

Which one of the following forms is used in connection with employee stock plans?

S-8.

Which of the following securities offerings is not exempt from registration prior to their sale?

Securities issued to a company's board of directors.

blue sky laws

Securities sold to the residents of the state in which the issuing company is chartered and principally doing business are exempted. However, these offerings may still be regulated by the securities laws of the individual states, these laws are commonly known as what

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.

Which one of the following is not a division of the SEC?

The Division of Compliance Information.

Which one of the following requires the maintenance of accounting records and adequate internal accounting controls?

The Foreign Corrupt Practices Act of 1977.

Which one of the following requires the registration of mutual funds that engage in investing and trading in securities?

The Investment Company Act of 1940.

Which one of the following Federal laws was enacted in 1935?

The Public Utility Holding Company Act.

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.

What was the significance of the controversy in 1977 over the appropriate accounting principles to be used by oil- and gas-producing companies? A. Several major lawsuits resulted. B. Partners of a major accounting firm were indicted on criminal charges. C.Companies refused to follow the SEC's dictates. D.The SEC overruled the FASB on its handling of this matter.

The SEC overruled the FASB on its handling of this matter. The SEC's 1977 stand vis-à-vis oil and gas accounting principles was a unique situation wherein the SEC overruled the FASB as far as proper accounting treatment.

Which one of the following requires the audit committee to be responsible for the appointment and compensation of the external auditor?

The Sarbanes-Oxley Act of 2002.

Which of the following statements is true? A. The Securities Exchange Act of 1934 is commonly referred to as blue sky legislation. B. The Securities Act of 1933 regulates the subsequent public trading of securities through brokers and markets. C.The Securities Exchange Act of 1934 regulates intrastate stock offerings made by a company. D.The Securities Act of 1933 regulates the initial offering of securities by a company.

The Securities Act of 1933 regulates the initial offering of securities by a company. "The Securities Exchange Act of 1934 regulates intrastate stock offerings made by a company." is false because intrastate offerings are typically exempt from registration; "The Securities Act of 1933 regulates the subsequent public trading of securities through brokers and markets." is false because the 1934 Securities Exchange Act regulates post-issuance trading of securities; and "The Securities Exchange Act of 1934 is commonly referred to as blue sky legislation." is false because blue sky legislation is state law.

Which one of the following regulates the initial offering of securities by a company or underwriter?

The Securities Act of 1933.

Which one of the following prohibits fraudulent and unfair behavior such as sales practice abuses and insider trading?

The Securities Exchange Act of 1934.

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.

Regulation S-X specifies:

The form and content of financial statements to be filed with the SEC.

When would a letter of comments be issued by the SEC?

To request clarification of a registration statement

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

Information required in proxy statements includes all except which of the following?

Two-year summary of industry segments, export sales, and foreign and domestic operations.

S-8 Statement

Used as a registration statement for employee stock plans

S-3 Statement

Used by companies that are large and already have a significant following in the stock market (at least $75 million of the voting stock is held by nonaffiliates). Disclosure is reduced for these organizations because the public is assumed to already have access to a considerable amount of information. Form F-3 is used if registration is by a foreign issuer

S-4 Statement

Used for securities issued in connection with business combination transactions

S-11 Statement

Used for the registration of securities by certain real estate companies

S-1 Statement

Used when no other form is prescribed. Usually used by new registrants or by companies that have been filing reports with the SEC for less than 36 months

When must Form 8-K be filed with the SEC?

Within fifteen days of the occurrence of certain significant events