The Securities and Exchange Commission is responsible
for: A. Option A B. Option B C. Option C D. Option D 2. Which regulation created the Securities and Exchange Commission? A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Investment Company Act of 1940 D. Garn-St. Germain Depository Institutions Act of 1982 Which of the following divisions of the SEC regulates national securities exchanges, brokers, and dealers of securities? A. Division of Investment Management B. Division of Corporation Finance C. Division of Corporation Regulation D. Division of Market Regulation Which division of the SEC develops and administers the disclosure requirements for the securities acts and reviews all registration statements and other issue-oriented disclosures? A. Division of Enforcement B. Division of Corporation Finance C. Division of Investment Management D. Division of Market Regulation Identify the regulation that created an entity which insures investors from possible losses if an investment house enters bankruptcy. A. Federal Deposit Insurance Protection Act B. Securities Investor Protection Act C. Investment Advisers Act D. Federal Bankruptcy Acts Regulation S-X and Regulation S-K: A. govern the preparation of financial statements and associated disclosures. B. govern the registration requirements for private placements. C. outline responsibilities for audit committees of publicly held companies. D. prohibit artificial pyramids of capital in public utilities. Which regulation resulted in the creation of the Public Company Accounting Oversight Board? A. Investment Advisers Act B. Securities Investor Protection Act C. Sarbanes-Oxley Act D. Trust Indenture Act
Regulation S-X presents the rules for preparing all of the following except: A. financial statements. B. footnotes. C. auditor's report. D. management's discussion. The preparation of which of the following items is covered by Regulation S-K? A. Descriptions of business B. Pro forma disclosures C. Schedules D. Reports of accountants
10. Which of the following presents the results of actions taken against accountants, brokers, and other participants for filing false or misleading statements? A. Financial Reporting Releases B. Financial Reporting Interpretations C. Accounting and Auditing Enforcement Releases D. Staff Accounting Bulletins 11. Which of the following covers new or revised administrative practices and interpretations used by the SEC staff in reviewing financial statements? A. Securities Exchange Act releases B. Exchange Act industry guides C. Accounting and Auditing Enforcement Releases D. Staff Accounting Bulletins 12. Which of the following acts requires that a trustee be appointed for sales of bonds, debentures, and other debt securities of public corporations? A. Securities Investor Protection Act B. Trust Indenture Act C. Investment Company Act D. Investment Advisors Act 13. In the issuer's annual report, how many years of audited financial statements must be presented? I. Three years of audited income statements II. Two years of audited balance sheets III. Three years of audited statements of cash flows A. I and II B. II and III C. I and III D. I, II, and III 14. Which of the following types of securities or securities transactions are exempt from the need to be registered under the Securities Act of 1933? I. Commercial paper with a maturity of nine months or less. II. Intrastate issues in which the securities are offered and sold only within one state. III. Securities exchanged by an issuer exclusively with its existing shareholders with no commission charged. A. I and II B. II C. I, II, and III D. III 15. Regulation D of the SEC presents important exemptions from full registration requirements for: A. private placements. B. issuances of securities by savings and loan associations. C. issuances of securities by common carriers regulated by the Interstate Commerce Commission. D. foreign companies.
16. Which of the following forms is the most comprehensive registration statement? A. Form S-1 B. Form F-2 C. Form S-3 D. Form S-2 17. When deficiencies are found in a registration statement that must be corrected before the securities may be offered for sale, which of the following is issued by the SEC? A. An audit opinion B. A comment letter C. A customary review D. A comfort letter 18. The purpose of a "tombstone ad" is: A. to inform investors an upcoming offering has been canceled. B. to inform investors of an upcoming offering. C. to inform investors an upcoming offering will be delayed for 30 days. D. to inform investors securities will be offered for sale after the company has responded to the SEC's comment letter. 19. Which of the following best describes a "red herring" prospectus? A. A shortened version of registration Form S-1 available to those companies that already have publicly traded securities. B. A prospectus containing material irregularities and deficiencies. C Preliminary information provided to investors about an upcoming issue, and issued between the time a . registration statement is presented to the SEC and its effective date. D. Disclosure in the business press, outlined in red, informing investors of an upcoming offering. 20. Which of the following observations is true of the shelf registration rule? A. It is an option available to all listed companies. B. Shelf registration is limited to 25 percent of the company's currently outstanding stock. C. It allows private placements of an unlimited amount of securities. D. It allows large companies to select the optimal time to sell their stock. 21. Accountants are liable for any materially false or misleading information contained in the registration statement filed with the SEC up to: A. the date the registration statement is filed. B. the date of the audit report. C. the effective date of the registration statement. D. the date securities are sold. 22. What does an underwriter typically require from an accountant which indicates that the company has fulfilled all the accounting requirements in the registration process? A. A comment letter B. An audit opinion C. A "red herring" prospectus D. A comfort letter 23. Which system helps the SEC accomplish its primary purpose of increasing the efficiency and fairness of the securities markets by expediting the receipt, acceptance, dissemination, and analysis of time-sensitive data filed with it? A. EDI B. ESEC C. EDGAR D. EMMA
24. Which of the following classes of information are included in the Form 10-K? I. Management's discussion and analysis II. Audited financial statements and footnotes III. Auditor's opinion on the company's internal control system A. I and II B. I and III C. II and III D. I, II, and III 25. Which of the following statements concerning Form 10-Q is NOT true? A. It is filed for all four quarters. B. It is the quarterly report to the SEC. C. It contains an update on significant matters occurring since the last quarter. D. It includes comparative financial statements prepared in accordance with APB 28. 26. Information concerning the unexpected resignation of one or more of the registrant's directors would be disclosed on which of the following forms? I. Form 8-Q II. Form 8-K A. I B. II C. Both I and II D. Neither I nor II 27. Proxy statements are: A. filed by an entity that acquires a beneficial ownership of more than 5 percent in a company. B. interim financial statements need not be audited. C. materials submitted to shareholders for votes on corporate matters. D. used to disclose unscheduled material events. 28. Schedule 13D is filed A. by entities that acquire a beneficial ownership of more than 5 percent of a class of registered equity securities. B. to broadly report material information that is being provided to securities analysts, selected institutional investors, or others. C. to disclose material items related to asset-backed securities such as a bond issue. D. by management to report the existence and effectiveness of the company's internal control over financial reporting. 29. Which of the following is defined as directly or indirectly having the power to vote the shares or investment power to sell the security? A. Proxy B. Significant influence C. Control D. Beneficial ownership 30. Which of the following choices best describes correct use of the forms indicated?
A. B. C. D.
Option A Option B Option C Option D
31. Which of the following is true about the Foreign Corrupt Practices Act of 1977 (FCPA)? I. Publicly held companies should maintain an adequate system of internal control. II. Individuals associated with U.S. companies are prohibited from bribing foreign officials for the purpose of securing a contract. III. Compensating or agents' fees are disallowed under all circumstances. A. I and II B. II and II C. I and III D. I, II, and III 32. According to the provisions of the Sarbanes-Oxley Act, A. accounting firms can provide both audit and non-audit services to the same company. B. the auditor should report directly to, and have its work overseen by, the company's management. C. audit committees should be composed of non-management members of a company's board of directors. D. both the lead audit partner and the audit review partner for publicly held companies should be rotated at least every two years. 33. Which of the following statements concerning the management discussion and analysis (MD&A) of a company's financial condition is true? I. It should cover the financial statements and other statistical data for the most recent three-year time span. II. It should make year-to-year comparisons of material changes in the line items. III. Management need not explain the cause(s) of the material changes. IV. Disclosure of material off-balance sheet transactions, arrangements, and obligations is required in each annual and each quarterly report. A. I, II, and IV B. II and III C. I, III, and IV D. I, II, III, and IV 34. Pro forma disclosures are: A. used to disclose unscheduled material events. B. interim financial statements need not be audited. C. materials submitted to shareholders for votes on corporate matters. D. "what-if" presentations often taking the form of summarized financial statements. 35. Which of the following statements concerning pro forma disclosures is not true? A. They show the effects of major transactions that occur after the end of the fiscal period. B They show the effects of major transactions that have occurred during the year but are not fully . reflected in the company's historical cost financial statements. C The SEC requires these to be presented only when the company has made an unusual asset exchange, . or a restructuring of existing indebtedness. D. They often take the form of summarized financial statements.
Each of the following questions names an item. Select the correct description of the item from this list. Indicate your selection by entering the letter of the description. Descriptions a. Provides preliminary information to investors about an upcoming issue. b. Informs investors of an upcoming offering. c. Required annual filing to the SEC. d. Discloses unscheduled material events. e. Includes amendments to the Securities Act, additional disclosure requirements, and other current issues regarding accounting and auditing principles and standards. f. Results in a thorough examination by the SEC of a registration statement. g. Issued by the staff of the SEC and contains differences that must be corrected in a registration statement before the securities may be offered for sale. h. Quarterly report to SEC. i. Includes new or revised administrative practices and interpretations used in reviewing financial statements. j. Includes the results of actions taken against accountants or other participants because false or misleading statements were filed. k. Includes Regulations S-X and S-K. 36. Customary Review
37. Comment Letter
38. "Red Herring" Prospectus
39. "Tombstone ad"
40. Form 10-K
41. Form 10-Q
42. Form 8-K
43. Staff Accounting Bulletins
44. Accounting and Auditing Enforcement Releases
45. The SEC administers many laws and regulations governing the information made in files reports. Required: a) What is the difference in issues covered by Regulation S-X and Regulation S-K? b) How do the issues covered by these regulations differ from the AAERs and SABs?
46. The items below are associated with the Securities and Exchange Commission. Describe or explain each item as concisely as possible. (a) Customary Review (b) Comment Letter (c) "Red Herring" Prospectus (d) "Tombstone Ad" (e) Financial Reporting Releases (f) Staff Accounting Bulletins (g) Accounting and Auditing Enforcement Releases (h) Management's Discussion and Analysis
47. Companies issuing stock to the public have to be aware of certain terms. Using complete sentences define the following: a) Comment Letter. b) Preliminary Prospectus. c) Shelf Registration.
48. The Securities Exchange Act of 1934 requires publicly held companies to file periodic financial disclosures as updates of their economic activity. The three basic forms used for this updating are Form 10-K, Form 10-Q, and Form 8-K. Required: Describe the information contained in each of the three basic forms noted above.
49. Both the FCPA (Foreign Corrupt Practices Act of 1977) and SOX (Sarbanes-Oxley Act of 2002) contain provisions related to Internal Control. Discuss some significant differences between how the two acts impact internal control practices for publicly held companies.
50. Smithtown Distributors acquired Paul's Plumbing on January 15, 2008. Violet Flowers acquired Frank's Farm on January 1, 2007. In the 12/31/07 financial statements filed with the SEC, Smithtown included a Pro Forma disclosure and Violet did not. If both acquisitions account for 100% of the common stock of the company acquired and are considered to be material, then can both filings be considered proper?
1. B 2. B 3. D 4. B 5. B 6. A 7. C 8. D 9. A 10. C 11. D 12. B 13. D 14. C 15. A 16. A 17. B 18. B 19. C 20. D 21. C 22. D 23. C 24. D 25. A 26. B 27. C 28. A 29. D 30. A 31. A 32. C 33. A 34. D 35. C 36. f. Results in a thorough examination by the SEC of a registration statement.
37. g. Issued by the staff of the SEC and contains differences that must be corrected in a registration statement before the securities may be offered for sale. 38. a. Provides preliminary information to investors about an upcoming issue. 39. b. Informs investors of an upcoming offering. 40. c. Required annual filing to the SEC. 41. h. Quarterly report to SEC. 42. d. Discloses unscheduled material events. 43. i. Includes new or revised administrative practices and interpretations used in reviewing financial statements. 44. j. Includes the results of actions taken against accountants or other participants because false or misleading statements were filed. b) AAERs (Accounting and Auditing Enforcement Releases) and SABs (Staff Accounting Bulletins) are issued by the SEC. The SABs allow staff to make announcements on technical issues with which it is concerned as a result of reviews of SEC filings. AAERs present the results of enforcement actions taken against accountants, brokers, and other participants in the filing process. 45. a) Regulation S-X presents the rules for preparing financial statements, footnotes, and the auditor's report. Regulation S-K covers all nonfinancial items such, as management's discussion and analysis of the company's operation and present financial position.
Management's Discussion and Analysis is one of the five classes of information comprising the Basic Information Package. The MDA consists of an analysis of the company's financial condition and changes in financial condition. The focus is on the discussion of the company's present and future prospects for liquidity, capital resources, and changes in operations. Management must disclose unused lines of credit, capital budgeting plans, and must perform a line-by-line analysis of the causes for changes in the financial statements presented. (h) Management's Discussion and Analysis The Accounting and Auditing Enforcement Releases (AAERs) present the results of enforcement actions taken against accountants, brokers, and other participants in the filing process. They include discussion of the findings and opinions, including sanctions against the accountants involved, and enforcement hearings held by the Commission. (g) Accounting and Auditing Enforcement Releases Staff Accounting Bulletins are new or revised administrative practices and interpretations used by the Commission's staff in reviewing financial statements. (f) Staff Accounting Bulletins Financial Reporting Releases include amendments to the Securities Act, additional disclosure requirements, and other current issues regarding accounting and auditing principles and standards. (e) Financial Reporting Releases A tombstone ad appears in the business press to inform investors of an upcoming offering. These ads are bordered in black ink, thus the title tombstone ad. (d) "Tombstone Ad" A "red herring" prospectus provides preliminary information to investors about an upcoming issue. The name red herring comes from the red ink used on the cover of this preliminary prospectus indicating it is not an offering statement and the securities being discussed are not yet available for sale. (c) "Red Herring" Prospectus A comment letter contains the deficiencies that must be corrected in a registration statement before the securities may be offered for sale. (b) Comment Letter A customary review is a thorough examination made by the staff of the SEC of a registration statement. 46. (a) Customary Review
c) The shelf registration allows a company with stock actively traded to establish a registration statement which can be updated in a short period of time, 2 or 3 days, and then issue more stock. The shelf registration is limited to 10 percent of the company's currently outstanding stock. A company may in this manner choose an optimal period in which to sell more stock. b) A preliminary prospectus, also referred to as a red herring, provides tentative information to investors about an upcoming issue. 47. a) A comment letter is issued by the SEC to specify deficiencies that must be corrected prior to the security being offered for sale.
Form 8-K: Form 8-K is used to disclose unscheduled material events. This form is due with 4 days after the occurrence of a "triggering event". The purpose of Form 8-K is to provide public disclosure of these significant events on a relatively contemporaneous basis. Form 10-Q: Form 10-Q is the interim report of the SEC. It is due within 45 days after the end of each quarter except the fourth quarter when the 10-K is issued. Part I of Form 10-Q includes comparative financial statements prepared in accordance with APB Opinion No. 28, but these interim statements need not be audited. Essentially the company provides financial statements for the most recent quarter, cumulative statements from the beginning of the fiscal period, and comparative statements for the preceding fiscal year. Part II of Form 10-Q is an update on significant matters occurring since the last quarter. These include new legal proceedings, changes in the rights of securities, defaults on senior securities, increases or decreases in the number of securities outstanding, and other materially important events affecting security holders. 48. Form 10-K: Form 10-K must be filed within 60 days after the end of the company's fiscal year-end. Although the report is broken into four parts, the general format is similar to the company's annual report. Parts I, II, and III contain the financial statements, management discussion and analysis, management report on internal control, auditor's report, and condensed financial information disclosures, often incorporated by reference to the annual report. Part IV contains additional schedules and exhibits. However, Form 10-K differs from the annual report by providing specific information relevant to the security holders, discussion of any disagreements with external auditors, management compensation and major ownership blocks, and schedules detailing selected asset and liability accounts including accounts receivable, property, plant, and equipment, the company's investments in other enterprises, and indebtedness of the company and its affiliates.
SOX, Section 404, requires an internal control report to be filed by management reporting on the existence and effectiveness of the company's internal control over financial reporting. 4. a review of the internal audit control system by the independent auditors. 3. an active audit committee from the company's board of directors, and 2. an objective internal audit function, 1. strong budgetary controls, 49. The FCPA defined important aspects of a good internal control system to include:
50. Pro forma statements can be used to show the effects of major transactions that occur after the end of the fiscal period. The acquisition of Paul's Plumbing occurred after 12/31/07 so it is proper for Smithtown to disclose the impact of this acquisition on its financial statements. Violet should have reported the acquisition of Frank's Farm in its consolidated 12/31/07 financial statements.
Category AACSB: Communication AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making AICPA: FN Reporting Baker - Chapter 14 Blooms: Apply Blooms: Remember Blooms: Understand Difficulty: 1 Easy Difficulty: 2 Medium Difficulty: 3 Hard Learning Objective: 14-01 Understand the SECs structure and regulatory authority. Learning Objective: 14-02 Understand the process of registering securities with the SEC. Learning Objective: 14-03 Understand periodic reporting requirements. Learning Objective: 14-04 Understand requirements for management reporting laws. Learning Objective: 14-05 Understand disclosure requirements. # of Questions 6 44 2 32 16 51 1 47 2 37 11 2 15 16 12 3 4