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CPA - Reg - 2016 > SU 2 - CPAs and the Law > Flashcards

SU 2 - CPAs and the Law Flashcards

1
Q

SA of 1933

A

Regulate the IPO of securities by requiring the filing of a registration statement with the SEC prior to sale or an offer to sell.
Objectives: (1) Disclosure to potential investors of all material info (2) Prevention of fraud
Goal: Provide investors with adequate info so they can make informed investment decisions

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2
Q

Blue sky laws

A

Each state securities laws. (Federal laws hold priority)

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3
Q

Issuer

A

The individual or the business organization initially offering a security for sale to the public (Generally, raising money)

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4
Q

Underwriter

A

Any person who participates in the original offering of securities from the issuer with the intention of distributing them

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5
Q

Dealer

A

Any person who is engaged in the business of offering, selling, buying, dealing, or otherwise trading securities issued by another

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6
Q

Broker

A

A person executes securities transactions for others

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7
Q

Nonreporting issuer

A

One who need not file reports under the 1934 act must use a detailed S-1

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8
Q

Unseasoned issuer

A

Has reported for at least 3 consecutive years under the 1934 act. Uses Form S-1 but provides less detail then some

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9
Q

Seasoned issuer

A

Has filed for at least 1 year and has market capitalization of at least $75 million. Uses the form S-3

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10
Q

Well-known seasoned issuer

A

Has filed for at least 1 year and has (1) a worldwide market capitalization of at least $700 million or (2) has issued cash in a registered offering at least $1 billion of debt or preferred stock in the past 3 years. Must file a Form S-3

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11
Q

Registration Statement

A

Complete disclosure to the SEC of all material information with respect to the issuance of the specific securities. Effective on the 20th day after filing. It includes the prospectus.

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12
Q

Prospectus

A

The purpose is to supply sufficient facts to make an informed investment decision.

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13
Q

Regulation S-X

A

Sets forth the form and content of and requirements for the FS required to be filed under the SA-1933 and other registration statements and reports under SA-1934

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14
Q

Shelf Registration

A

Once a registration statement has been filed it is put on the shelf for up to 3 years until the best time for an offering is determined. This is under SA-1933.

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15
Q

Regulation A

A

certain issuers to offer up to $5 million of securities in any 12 month period w/o full registration. No limit to the investors that can be investing. It tests the waters for offering the stock. There is no resale restriction.

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16
Q

Rule 147

A

Interstate offerings. No maximum price, but the purchasers and offerees must be instate. No resales to nonresidents for at least 9 months

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17
Q

Regulation D (Rule 504)

A

Establishes Rule (504, 505, 506) related to smaller issuers. Creating a maximum of $1 million price in 12 months. There is no limit on who invests. Allows for general solicitation if allowed and if compliant with state law. Resale is not restrict if it agrees with state law

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18
Q

Accredited investors

A

most institutional investors and individuals that meet income or net worth thresholds

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19
Q

Nonaccredited investors

A

All investors who are not institutional

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20
Q

Rule 505

A

Max price is $5 million in 12 months, to no more than 35 purchasers who are not accredited. Can have as many accredited as desired. General solicitation or advertising allowed, and resale is restricted

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21
Q

Rule 506

A

There is no max price, investors are no more than 35 not accredited purchases who need to have knowledge and experience to evaluate. Can have as many accredited as desired. No general solicitation or advertising unless all the sales are too accredited investors. Restricted resale.

22
Q

Rule 4(6)

A

Max price of $5 million to only accredited investors. No general solicitation or advertising is allowed. It has a restricted resale

23
Q

Crowdfunding

A

Max price is $1 million, with no limit on income or net worth of investors. Usually offered via internet and resale is restricted.

24
Q

SA - 1934

A

Primarily deals with secondary distributions or resale. Requires registration with the SEC. Started the SEC. Requires periodic reporting.

25
Form 10-K
Filed annually containing Audited FS. Filed 60 days after last day of fiscal year for Large accelerated filers($700 million or more in shares to the public. 75 days for accelerated filers ($75 - $700 million) and 90 days for non accelerated filers (
26
Form 10-Q
Quarterly statements with reviewed quarterly financial info with any changes during the quarter. Needs to filed 40 days after end of first 3 quarters for large accelerated filers and 45 days for nonaccelerated filers
27
Form 8-K
Current reports for material events. Need to be filed 4 calendar days from the event.
28
Section 14(a) of SA-1934
makes it unlawful for a person to solicit any proxy with respect to any registered security in violation of SEC rules and regulations.
29
proxy
A POA given by a S/H to a 3rd party authorizing the party to exercise the voting rights of the shares.
30
Section 16 of SA - 1934
requires insiders to report information regarding the tradings by themselves by companies they have control off
31
SOX 2002
CEO and CFO must sight reports and are responsible. Intentional violation = forfeit of bonus and stock options Created PCAOB
32
insider trading
Under Rule 10b-5 the purchase of any security by an individual who (1) has access to material, nonpublic info (2) has not disclosed it before trading (3) has a fiduciary obligation to the issuer, the S/H or other people.
33
Section 20A of SA-1934
A private suit for damages may be brought by a contemporaneous purchaser or seller of shares of the same class
34
Section 16(b) of SA-1934
Insiders can be sued for short-swing profits on registered equity securities by the issuer or a SH suing on behalf of the Corp if the issuer.
35
Short-swing profits
Sale and purchase of the issuer's stock within a 6 month period.
36
Section 11 of SA-1933
Accountants liability and auditing FS creates a civilly liable without proof of fault. A person who acquires a security issued under a registration statement or prospectus that contains a misstatement or omission of material fact can sue everyone.
37
Due diligence
the accountant reasonably believed that the time of the registration statement that the FS did not contain an omission or misstatement of material fact.
38
Section 10(b) of SA-1934
Antifraud provision
39
Section 10(b)-5 of SA - 1934
It is illegal for any person, directly or indirectly, to use interstate commerce or national securities exchange to defraud anyone in connection with the purchase or sale of any security whether registered or not. (Usually applied to insider trading and corporate misstatements)
40
Scienter
To defraud or intent to defraud; actual or implied knowledge of fraud.
41
Public Company Accounting Oversight Board (PCAOB)
Requires : a) registration of public accounting firms b) establishes and adopts rules for audit report c) inspects/investigates accounting firms, conducts disciplinary proceedings, imposes sanctions, enforces compliance
42
Audit committee
must choose the auditor and help the auditor complete the audit.
43
Section 404 of SOX
Management must establish and document IC and include an annual report of the IC over financial reporting. Inspection by PCAOB every 3 year (1 year for large firms)
44
Work papers
Documentation of audit and must be retained for 7 years.
45
Dodd-Frank Wall Street Reform
Created after 2008 and extended SEC's authority to broker - dealers auditors and investment advisors.
46
Clawback policy
A policy on how to recover for performance-based executive compensation after a financial restatement
47
Due care
Nonnegligently following standards
48
tort
a private wrong resulting from breach of legal duty to society. Usually occurs because of negligence.
49
Gross negligence
failure to use even slight care. Accountant liable for punitive charges then
50
Privity of contract
person in direct contract with the accountant or the primary beneficiary of the engagement.

CPA - Reg - 2016 (7 decks)

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