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BK REG > REG 5 BUS LAW BK > Flashcards

REG 5 BUS LAW BK Flashcards

1
Q

Eye of the Tiger

Another name for constructive fraud?

A

Gross negligence

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2
Q

Eye of the Tiger

What are the elements of negligence?

A

Duty, breach of that duty, causation and damages.

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3
Q

Eye of the Tiger

Who is the CPA liable to for negligence under the majority rule?

A

To any limited foreseeable class of persons whom the CPA knows will be relying on the CPA’s work.

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4
Q

Eye of the Tiger

What is the Ultramares decision?

A

Limits CPA liability for negligence to persons in privity of contract with the CPA and named 3rd party beneficiaries.

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5
Q

Eye of the Tiger

Defense for CPA under breach of duty?

A

The person is neither a client nor a person that the CPA knows will be relying on the audit.

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6
Q

Eye of the Tiger

Best evidence that a CPA acted like a reasonably prudent CPA?

A

Followed GAAP/GAAS

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7
Q

Eye of the Tiger

Elements of actual fraud

A
  1. Material misrepresentation 2. Actual reliance 3. Intent to deceive 4. Damages 5. Scienter
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8
Q

Eye of the Tiger

Difference between actual and constructive fraud?

A

Constructive fraud— same elements except no intent to deceive, rather the defendant acts recklessly

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9
Q

Eye of the Tiger

To whom is a CPA liable for fraud?

A

Anyone who can prove the elements of fraud.

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10
Q

Eye of the Tiger

What must be proven for a CPA to be liable under Section 11 of the 1933 Act?

A

“LAM”– loss occurred, acquired stock, material misrepresentation

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11
Q

Eye of the Tiger

What must be proven for a CPA to be liable under Section 10b-5 of the 1934 ACT?

A

“LAM”, scienter, and reliance (fraud). Also, interstate commerce must be involved.

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12
Q

Eye of the Tiger

Who may accountant show workpapers to without client’s permission?

A

If the papers are subpoena’s in a court case, a prospective purchaser of the CPA’s practice, a state CPA society voluntary quality control review panel, and official investigation by the AICPA/state trial board, and where GAAP/GAAS require disclosure.

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13
Q

Eye of the Tiger

Major difference between Securities Act of 1933 and Securities Exchange Act of 1934?

A

1933 Act regulates original issuance of securities, 1934 Act regulates purchases and sales after initial issuance.

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14
Q

Eye of the Tiger

Rule of thumb for determining if something is a security?

A

Someone else manages it, ie investor is passive.

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15
Q

Eye of the Tiger

Purpose of SEC?

A

To provide enough information for investors to make decisions. The SEC does not evaluate the information for accuracy, the offering’s financial merits, etc.

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16
Q

Eye of the Tiger

What types of people must register under the 1933 Act?

A

Dealers, underwriters, issuers—- Don’t get a “DUI” after you register your securities :)

17
Q

Eye of the Tiger

When are prospectuses required?

A

Unless a issuance is exempt, each investor must receive a copy of the prospectus before or contemporaneous with every sale of the security.

18
Q

Eye of the Tiger

Who must certify the financial statements of a registrant under the 1933 Act?

A

A public accounting firm registered with PCAOB.

19
Q

Eye of the Tiger

When is shelf registration permitted?

A

If issuer has continuosly filed under 1934 Act for one year and the info is continuously updated.

20
Q

Eye of the Tiger

What sales activities are allowed during the 20 day period between registration and filing?

A

Oral offers to sell, tombstone ads, red herring prospectus

21
Q

Eye of the Tiger

What securities are exempted from registration

A

Bank-issued securities, regulated common carrier securities, insurance policies, not-for-profit securities, Gov’t-issued securities, short-term commercial paper (“BRINGS” mnemonic)

22
Q

Eye of the Tiger

Are exchanges with existing stockholders exempt from registration?

A

Yes, because there is no creation of new stock, so no need to register.

23
Q

Eye of the Tiger

What kind of sales that states make are exempt from registration?

A

Intrastate sales. Interstate sales are not exempt.

24
Q

Eye of the Tiger

What is Regulation A?

A

Permits a simplified form of registration. Unaudited financial statements are ok. Regulation A offerings, therefore, do not need to be registered per the requirements of the Security Act of 1933.

25
Q

Eye of the Tiger

Describe Regulation D general conditions.

A

Reg D exempts private offerings. Thus, no advertising is allowed. Purchasers may not resell securities that are issued under Reg D to the public for 2 years after purchase. SEC must be notified of the issuance of securities under Reg D within 15 days.

26
Q

Eye of the Tiger

Disclosure requirements under Rule 505 and Rule 506?

A

If there are any unaccredited investors, then all investors must be given at least an annual report containing audited financial statements.

27
Q

Eye of the Tiger

What is Section 11 of the 1933 Act?

A

Makes anyone who signs a registration statement liable for all damages caused by any material misstatement of fact.

28
Q

Eye of the Tiger

What must be shown to prevail in a Section 11 suit?

A

LAM only. NO need for scienter, reliance, negligence.

29
Q

Eye of the Tiger

What types of companies must register their securities under the 1934 Act?

A

Companies whose shares are traded on a national exchange and companies that have a) more than $10 million in assets and b) at least 2000 shareholders or 500 unaccredited shareholders

30
Q

Eye of the Tiger

When is form 10K required to be filed? How about form 10Q? And form 8K?

A

10K–within 60 days of year end for large corp. and 90 days for small business 10Q—within 40 days of quarter end 8K—within 4 days of a major change in the company

31
Q

Eye of the Tiger

What are the other required reports other than the 10K, 10Q and 8K?

A

5% + owners must report, tender offers must be reported, insider trading must be reported, and proxy solicitations and proxy statements must be reported (“5% TIP”)

32
Q

Eye of the Tiger

What constitutes an insider?

A

officers, directors, and > 10% owners

33
Q

Eye of the Tiger

Preparer penalty for understatement of tax liability?

A

$1,000

34
Q

Eye of the Tiger

Out of 10K, 10Q and 8K, which report must be certified by independent accountants?

A

10K

35
Q

Eye of the Tiger

Section 11 of 1933 Act statute of limitations?

A

One year after discovery of untrue statement/omission and within 3 years of offering date.

36
Q

Eye of the Tiger

Are insurance policies regulated by the Sec. Exchange Act of 1933? How about other securities issued by insurance companies?

A

insurance policies–no. other securities issued by insurance companies—yes.

37
Q

When is a tax preparer penalized for understatement of tax liability?

A

When understatement is due to an unreasonable position, the preparer should have known about the unreasonable position, and the position lacks reasonable basis.

BK REG (11 decks)

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