Chapter 1 - Financial Accounting Conceptual Framework and an introduction to financial reporting

Question 0

What is a tender offer?

Answer 0

A tender offer is an offer to acquire a large number of shares of a corporation (typically for a premium above the current market price).

Question 1

What is the role of Securities and Exchange Commission (SEC)?

Answer 1

The SEC is a federal agency created by the United States Congress in 1934 with the issuance of the Securities Exchange Act of 1934. The role of the SEC is to protect investors, promote stability in the markets, and enforce the securities law. Their mission, specifically stated, is to protect investors, maintaining fair, orderly and efficient markets, and to facilitate capital formation.

Question 2

What are the 5 primary responsibilities of the SEC?

Answer 2

1. Interpret the federal securities laws.
2. Issue or amend rules governing public sector entities.
3. Oversee and monitor inspections of securities firms, brokers financial investments advisors, and rating agencies.
4. Monitor private regulatory organizations in the securities, accounting, and auditing sector.
5. Manage US securities regulation with governmental bodies.

Question 3

What are the 5 divisions of the SEC?

Answer 3

1. Division of Corporate Finance
2. Division of Trading and Markets
3. Division of Investment Management
4. Division of Enforcement
5. Division of Risk, Strategy, and Financial Innovation

Question 4

What is SEC rulemaking?

Answer 4

SEC rule making in the process by which federal agencies implement legislation passed by Congress and signed into law by the US president. The rule making process can involve multiple steps including concept release, rule proposal, and rule adoption.

Question 5

What does the Securities Act of 1933 regulate?

Answer 5

Securities Act of 1933: Regulates initial public offerings (IPOs), prohibiting fraud, decepton, and misrepresentation and requires companies to register their securities.

Question 6

What are the requirements of the SEC registration process?

Answer 6

1. Describe the entity’s business or properties
2. Describe the securities to be offered for sale.
3. Provide details about the entity’s management
4. Provide financial statements certified by independent accountants.
   A. Balance Sheet for two years including a balance sheet dated within 90 days of the filing.
   B. Income Statements, Statement of cash flows, and statement of shareholders’ equity for the most recent three years. (or length of time in business)

Question 7

What is the purpose of the Securities Act of 1934?

Answer 7

Securities Act of 1934: Delegated authority over the securities industry to the SEC with the goal of making complete and accurate information available to traders on the securities markets (e.g. New York Stock Exchange). The Act of 1934 regulates securities after the initial public offering and requires compliance with periodic reporting requirements.

Question 8

What are the SEC major filings?

Answer 8

1. Form 10-K
2. Form 10-Q
3. Form 8-K
4. The Annual Report to Shareholders

Question 9

Define and explain “Code of Federal Regulations”.

Answer 9

Final federal regulations are organized by topic in the Code of Federal Regulations (CFR).

Title 17 of the CFR, Chapter II contains the SEC Regulations such as the Securities Acts of 1933 and 1934, the Sarbanes-Oxley Act of 2002, and Regulation S-X.

Question 10

When does the Securities Act of 1934 apply?

Answer 10

It applies if an entity meets one or more of the following requirements:

1. The entity made a registered offering under the Act of 1933
2. The entity has assets of more than 10 million and at least 500 shareholders,
3. The entity’s equity securities are traded on a national exchange.

Question 11

What are the required documents a publicly traded entity must file with the SEC?

Answer 11

A. Registration Statements for newly issued securities
B. Annual and quarterly filing
C. Proxy documents sent to stockholders for their annual meeting
D. Annual report to shareholders
E. Documentation for tender offers
F. Any Filings with regards to mergers and acquisitions

Question 12

Describe major filing “Form 10-K”

Answer 12

Form 10K: Annual filing pursuant to the Act of 1934. Must include a discussion of the business, properties, risk, and legal proceedings; management discussion and analysis; audited financial statements and supplementary data; executive compensation; controls and procedures information; and signatures of key employee.

Question 13

Describe major filing “Form 10-Q”

Answer 13

Quarterly filings that includes unaudited financial statements; management’s discussion and analysis; disclosures about market risk; controls and procedures information, if required; and other exhibits or information if aplicable. The Form 10 Q must be filed each of the first three quarters for the entity’s fiscal year. Balance sheets for the end of the preceding fiscal year must also be presented.

Question 14

Describe major filing “Form 8-K”

Answer 14

Monthly filing, also know as the current report, must be filed only if a significant event occurs, such as a merger. Unless otherwise specified, it is due within four days following the event.

Question 15

Describe major filing “The Annual Report”

Answer 15

The annual report to the shareholders is an unofficial document that generally includes an opening letter from the chief executive officer, selected financial data, photographs of the business, results of continuing operations, market segment information, new product plans, subsidiary activities, and future research and development activies.

Question 16

What is the required filing deadline for “A Large Accelerated filer”

Answer 16

for float of 700 million or more - must file the form 10-K within 60 days of the period’s end and the form 10-Q must be filed within 40 days of the quarter-end.

Question 17

What is the required reporting deadlines for “An Accelerated Filer”

Answer 17

for float of 75 million or more but less than 700 million - must file the form 10K- and 10-Q within 75 days and 40 days, respectively.

Question 18

Required reporting deadlines for “A Non-Accelerated filer”

Answer 18

for float of less than $75 million must file forms 10K- and 10-Q with 90 days and 45 days, respectively

Question 19

What is the Trust Indenture Act of 1939?

Answer 19

Sets standards for the formal agreement (trust indenture) between a bond issuer and holder.

Question 20

What is the Investment Company Act of 1940?

Answer 20

Regulates companies who primarily invest, reinvest, and trade securities but are also registered companies themselves.

Question 21

What is the Investment Advisors Act of 1940?

Answer 21

Regulates investment advisors (ie: compensated professionals who provide securities investment advice.

Question 22

What is the Securities Investors Protection Act of 1970?

Answer 22

Protects customers of registered brokers, dealers and members of national securities exchanged.

Question 23

What is the Sarbanes-Oxley Act of 2002?

Answer 23

Regulates corporate responsibility and created the Public Company Accounting Oversight Board (PCAOB) to oversee the auditing profession.

Question 24

What is Regulation S-X?

Answer 24

Regulates the form and content requirements for financial statements filed by SEC registered entities.

Question 25

What is Regulation S-K?

Answer 25

Regulates the non-financial statement information disclosure requirements for entities filing with the SEC. (eg: general information, business descriptions, and discussion of financial information).