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1
Q

What are examples of intangible assets?

A

Intellectual capital

Brand value

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2
Q

What is not accounted for in traditional accounting?

A

Intangible assets

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3
Q

Define “sustainability”

A

Sustainability is the ESG dimensions of a company’s performance and operations

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4
Q

when did the EU first adopt standards?

A

September 2014

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5
Q

What are the areas of the EU regs?

A

Hearse CBD

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6
Q

What does hearse stand for?

A

HR, Employees, Social, Environmental

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7
Q

What does CBD stand for?

A

Corruption, Bribery, Diversity

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8
Q

What does US require?

A

Material information be disclosed

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9
Q

Who determines materiality?

A

Up to each firm to determine materiality

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10
Q

When was PRI incepted

A

2006

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11
Q

If assets are intangible, what impacts you

A

1) ESG Risks, 2) Company’s actions on ESG risks and 3) regulations on ESG risks

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12
Q

Which direction does ESG disclosure look?

A

Forward

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13
Q

What is fiduciary duty?

A

Look after your clients’ interests instead of your own

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14
Q

What is “universal owner” approach?

A

You own the assets, but so does everyone else

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15
Q

What does Universal owner want?

A

Broad growth across multiple generations

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16
Q

What did Uniform Prudent Investor Act of 1992 require?

A

Consider sustainability information to be material for prudent fiduciaries BECAUSE it impacts valuation

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17
Q

What 2 US laws were passed after the Crash of 1929?

A

Securities Act of 1933 and the Exchange Act of 1934; Flipped alphabetically

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18
Q

What does 1933 Act Section 5(c) require?

A

Anti-Fraud: Fully and truthfully disclose information in a securities registration statement

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19
Q

What does the 1934 Act do?

A

Regulated exchanges and spells out ongoing reporting requirements

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20
Q

What are new reporting standards designed to do?

A

Change corporate behavior

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21
Q

How do the two Acts differ?

A

Sec. Act of ‘33 focuses on new issue, Exchange Act of ‘34 focuses on secondary markets

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22
Q

What does SEC Rule 10b-5 state?

A

No untrue statements; no misleading statements; broad anti-fraud rule

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23
Q

What does 1934 Exchange Act Section 12 require?

A

Registration of securities with “complete information”

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24
Q

What does 1934 Exchange Act Section 13 require?

A

Update initial registrations through periodic reporting, 10-K, etc.

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25
What are the required annual reports?
Form 10-K, Form 20-F, Form 40-F
26
What is the required quarterly report?
Form 10-Q
27
What is the current period report?
Form 8-K
28
What is PCAOB?
Public Company Accounting Oversight Standards Board
29
When was PCAOB founded?
2002
30
What legislation founded it?
Sarbanes-Oxley
31
When did FASB start?
1973
32
What were earlier boards?
Committee on Accounting Procedure and Accounting Principles Board CAP and APB
33
What did FASB work to do?
Codify GAAP
34
What was SFAC 2?
Focused on qualitative aspects of accounting: RRN; CMC/B
35
What is RRN
Relevant, Reliable and Nuetral
36
What is CMC/B?
Comparable, Material, Cost/Benefit to gather data
37
What is SFAC 8?
Redefined materiality in GAAP
38
When was SFAC 8?
2010
39
What did SFAC 8 say?
Replaces 1 and 2; To be relevant, it must be material
40
Distinguish FASB from APB
FASB full-time, APB was part-time. FASB has staff, APB had no staff
41
What is ASOBAT?
A Statement of----Basic Accounting Theory
42
What case defined "materiality"?
TSC vs. Northway in 1976
43
How did TSC define "materiality"?
Leaving it out change the "total mix" of info available to the reasonable investor; Doesn't have to change decision
44
What kind of fact is material?
A fact "likely to be considered" is material
45
What was "Basic vs. Levenson" about?
Basic in 1988 created a "test" testing materiality through 1) probability and 2) magnitude
46
What was "Reese vs. Malone" about?
BP made false statements. Material omissions that would have "altered the total mix of information"
47
What does FASB's Staff Accounting Bulletin #99 say?
No bright line rule on materiality. Rejected at 5% +/- standard; Materiality is qualitative
48
What did FASB say about materiality in 2014?
Materality is a legal concept
49
What is diff between "relevant" and "material"?
Relevant is general idea of what is useful. Material is "judgment of reasonable person would be changed by inclusion of OR correction of this item.
50
What did SEC say about ESG disclosures?
Didn't want to include; minority of investors care
51
What does the SEC position do?
SEC position conflicts with the '33 and '34 Acts desire to "change behavior"
52
What is the purpose of sustainability accounting?
Purpose is to help close gap between market value and book value
53
Where can you put sustainability metrics?
Sustainability metrics can be put into management accounting metrics
54
Where could you use sustainability?
Balanced scorecard approach
55
When are reporting requirements?
Current and periodic
56
What is a 10-K?
Annual, comprehensive report with audited financials
57
What does Reg S-X address?
Financial reports
58
What does Reg S-K address?
Non-financial information
59
When is a 10-Q filed?
10-Q is filed when there is not a 10-K, so 3 of 4 quarters
60
What does a 10-Q contain?
Unaudited financials and current company condition
61
What is an MD&A
Management Discussion and Analysis is abbreviated MD&A
62
What 3 areas of 10-K would have sustainability language?
Item 101, 103 and 503c
63
What is 10-K Section 101 of Reg S-K
Description of Business, so financial impact of any ESG issues, laws in Section 101
64
What is 10-K Section 103 of Reg S-K
Legal proceedings--Did enviro laws change? in Section 103
65
What is 10-K Section 503b of Reg S-K
What Risk Factors to business in Section 503b
66
What is 10-K Section 303 of Reg S-K
That's the MD&A section, section 303 is the MD&A section
67
What must you disclose in MD&A?
Known trends must be disclosed
68
What is optional to disclose in MD&A?
Anticipation of a future trend is optional
69
What is MD&A about?
MD&A is about 'known trends and uncertainties that are reasonably likely to have a "material impact" on operations and financial conditions
70
What did the SEC say in 2003?
Disclosure should "look through eyes of management" and discuss quality and variability of cash flow and earnings
71
What does 12b-20 of Exchange Act require?
Provide enough info to make ALL statements not misleading
72
What did SEC say in 2010?
Four issues: Legislation/Regulation; International Agreements; Physical Impacts; Indirect Impacts (brand, demand, etc.)
73
What did the 2010 SEC requirements do?
Created need to capture environmental information
74
What is not a defense to inadequate disclosure?
Boilerplate disclosures aren't a defense; each firm determines materiality
75
What statutes can shareholders bring actions under?
'34 Exchange Act, Section 10b and SEC Rule 10b-5
76
What was the name of the post-1929 Crash Senate Banking Committee Report?
The Fletcher Report
77
What did Supreme Court say about Securities Act of 1933?
Upheld it. "Full disclosure of information thought necessary to informed investment decisions"
78
Why was 1934 exchange Act passed?
To fill gaps in the 1933 law
79
What were the gaps in the 1933 law?
No regulation of stock exchanges
80
What does SEC require in disclosure?
Make available all information that might be relevant to buy, hold or sell security
81
When did the SEC permit GAAP?
1938
82
What is "Decision-Usefulness"?
In ASOBAT (1966), moved away from valuation and toward what users would need to know
83
What did ASOBAT focus on?
Discounted future cash flows
84
What does "SFAC" stand for?
Statement of Financial Accounting Concepts
85
What are the elements of SFAC 8?
Relevant, Faithful Representation//Comparable, Verifiable, Timely, Understandable
86
What does 1934 Exchange Act Section 10(b) require?
Make an untrue statement of a material fact or omit a material fact
87
What is optional in an MD&A?
"Anticipating a future trend or event, or a less predictable impact of a known event"
88
What is required in an MD&A
Focus on Material information; Include KPIs; Analyze info disclosed; known trends and "uncertainties that are reasonably likely";
89
Who signs the statements per Sarbanes-Oxley?
CEO and CFO certify the content of the issuer's reports
90
What do you certify under Sab-Ox?
1) Material accuracy, 2) effective disclosure controls and 3) inadequacies in/changes to internal controls about financial reporting

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