The SEC

Question 1

SEC’s main purposes:

• 1. The mission of SEC is to protect ___, maintain f___, o___ and e___ markets, and facilitate c___ i___.
• 2. SEC’s intent is to ensure that there is a___ i___ in the public domain before firms issue securities and before those securities are subsequently traded.
• 3. SEC’s IDEA (___) database replaced SEC’s EDGAR (___) database to facilitate the reporting of financial statement information in XBRL (___) format which allows users to quickly prepare any type of report they wish. The purpose of IDEA is to increase the ____ of the securities markets by providing timely and accessible data.
• 4. SEC and top European Union officials agreed to a roadmap toward ____ between U.S. GAAP and IFRS.
• 5. SEC allowed the financial statements of ___ issuers prepared in compliance with ___ without ___ to U.S. GAAP. The cost of completing the reconciliation was viewed as a deterrent for foreign issuers to access the U.S. capital markets. Eliminating the requirement will hopefully encourage more foreign businesses to list their securities in the U.S.
• 6. When SEC determines that a firm has reported in such a way that GAAP has been violated, it sends a ___ to the firm. If not resolved, SEC can ___ of the security. If warranted the Department of Justice becomes involved and ___ for violations of the securities laws are filed.
• 7. A foreign private issuer is any foreign issuer other than a ___. Exceptions:
     * 1. More than ___ of the outstanding voting ___ are directly or indirectly owned by residents of the U.S. and any of the following:
     
     • 1. Most of its ___ are U.S. citizens or residents.
     • 2. More than ___ of the ___ are located in the U.S.
     • 3. The ___ is administered principally in the U.S.
• NOTE - SEC can prescribe accounting standards, but it has delegated this task to the private sector body (currently the FASB). However, SEC maintains the ___ power for all ___ to assure ___ with the U.S. GAAP.

Answer 1

• 1. investors; fair; orderly; efficient; capital information.
• 2. adequate information.
• 3. Interactive Data Electronic Applications; Electronic Data Gathering, Analysis and Retrieval System; Extensible Business Reporting Language; efficiency.
• 4. convergence.
• 5. foreign private; IFRS; reconciliation.
• 6. deficiency letter; halt the trading; criminal charges.
• 7. foreign government.
     * 1. half; securities
     
     • 1. officers or directors
     • 2. half; assets
     • 3. business of the issuer
• NOTE: enforcement; public companies; compliance

Question 2

SEC Organizational Structure:

• 1. The SEC is a member of the ___ (IOSCO).
• 2. The ___ of SEC is the most important office for standard setting. This office houses the ___ on ___ principles, auditing standards and financial disclosure requirements. This office issues position papers for SEC to consider and is the link between SEC and the accounting profession. This office has oversight of FASB and is the voice of SEC regarding standard-setting issues.
• 3. The SEC has ___ commissioners appointed by ___.
• 4. The SEC has ___ divisions: CITE.
     * 1. Corporate Finance - oversees the ___ and examines all ___ made by public companies. All filings go to the Corporate Finance division.
     * 2. Investment Management - oversees the ___ and ___ under the Investment Company Act of 1940 and the Investment Advisers Act of 1940.
     * 3. Trading and Markets - oversees the s___ markets, ex___, br___, and de___.
  • 4. Enforcement - when there is a ___ of a securities law (except the Public Utility Holding Company Act), this division completes the investigation and takes appropriate actions. This division makes recommendations to the Justice Department concerning any ___ or potential ___.

Answer 2

• 1. International Organization of Securities Commissions.
• 2. Office of the Chief Accountant; technical expertise; accounting.
• 3. five; the President of the U.S.
• 4. four.
     * 1. compliance with the securities acts; filings
     * 2. investment advisers; investment companies
     * 3. secondary; exchanges; brokers; dealers
     * 4. violation; punishments; criminal prosecution

Question 3

SEC’s Participation in Standard Setting:

• 1. Even though SEC delegates the creation of accounting standards to FASB, it frequently ___ on accounting and auditing issues.
• 2. SEC pronouncements, along with FASB ASC, comprise authoritative GAAP. Public companies must adhere to ___ and GAAP; private companies do not have to adhere to SEC pronouncements.
• 3. The main SEC pronouncements are:
     * 1. FRR (___) - these are ___ pronouncements and are the ___ of accounting for ___ companies.
     * 2. SAB (___) - these provide SEC’s current position on ___. SABs are not formal pronouncements, but they are still important to financial statement preparers, because they reflect the staff’s current thinking on various technical issues.
     * 3. AAER (___) - these report the ___ that have been taken ___ accountants, brokers or others.

Answer 3

• 1. comments.
• 2. SEC pronouncements.
• 3.
  
  • 1. Financial Reporting Releases; formal; highest-ranking authoritative source; public.
  • 2. Staff Accounting Bulletins; technical issues.
  • 3. Accounting and Auditing Enforcement Releases; enforcement actions; against.

Question 4

• 1. The formal SEC rules are found in the ___.
• 2. All public companies must comply with the securities regulations: ___ and ___.
     * 1. Regulation S-X governs the form and content of ___ and ___ disclosures.
     * 2. Regulation S-K governs the form and content of ___ disclosures. These disclosures are the content of the 10-K ___ of the financial statements (remember that “S-K” governs the “10-K” non-financial content). The non-financial statement disclosures are:
     
     • 1. Description of the business.
     • 2. Description of stockholder matters.
     • 3. MD&A.
     • 4. Changes in and disagreements with accountants.
     • 5. Information on directors and management.

Answer 4

• 1. Code of Federal Regulations
• 2. Regulation S-X; Regulation S-K.
     * 1. financial statements; financial statement.
     * 2. non-financial statement; outside.

Question 5

Initial Registration of Securities - The Securities Act of 1933:

• 1. This Act requires public companies to file a _______ statement, and to provide each investor with a _______ statement before each shareholders’ meeting.
• 2. A company that wants to sell debt or stock to the general public is required to register those securities with ______. Registration requires extensive disclosures about the company, management, and the intended use of the proceeds from the issue.
• 3. What is the basic registration form for new securities?
     * 1. Part 1 of Form S-1 is the p______ that is offered to potential purchasers of securities. A prospectus describes the company, business operations, risks, financial stmts, and expected use of the proceeds. The basic financial statements requirements are:
     
     • 1. 2 years of ________ (financial information includes a balance sheet dated within 90 days of the filing).
     • 2. 3 years of ________.
     • 3. 5 years of ___________.
     • 4. financial statements must be _______.
     • 5. prior statements are presented on a ________ basis.
          
          • 2. Part 2 of Form S-1 includes information about:
     • 1. c____ of issuing and distributing securities.
     • 2. d____ and o_____.
     • 3. additional financial stmt s_____.

Answer 5

• 1. registration; proxy
• 2. SEC
• 3. Form S-1
     * 1. prospectus 小册子，简章
     
     • 1. balance sheets
     • 2. other stmts = Inc Stmt, Stmt of CF, Stmt of SE
     • 3. selected financial information
     • 4. audited
     • 5. comparative
          
          • 2.
     • 1. cost
     • 2. directors and officers
     • 3. schedules

Question 6

Initial Registration of Securities - The Securities Act of 1933:

• 1. The steps in the Initial Public Offering (IPO) process is: ___ > ___ > ___ > ___
• 2. The underwriter provides m___ and d___ of the securities. The underwriter is often contractually obligated to ___ the securities under one of the following arrangements:
     * 1. Firm commitment - the underwriter purchases the ___ issue at a fixed price.
     * 2. Best efforts - the underwriter sells as ___ as possible.
     * 3. All or none - if the underwriter is unable to ___ (or a ___ portion) then the issue may be ___.
• 3. Once the stock is issued, it may be traded over the counter by ___ or on an organized exchange.

Answer 6

• 1. Issuer > Underwriter > Dealer > Public
• 2. marking and distribution; sell
     * 1. entire
     * 2. many shares
     * 3. sell all; significant; canceled
• 3. dealers

Question 7

Subsequent Reporting of Securities - The Securities Exchange Act of 1934:

• 1. This act regulates the trading of securities after they are issued and requires periodic reporting.
• 2. The most common required forms:
     * 1. Annual filing—_____: reports annual financial information to SEC. It is separated into _____ parts.
     • 1. Financial Stmts are in Part II item 8.
     • 2. MD&A is in Part II item 7.
     • 3. MD&A provides a discussion of important aspects of the firm from the viewpoint of ____.
          
          • 2. Quarterly filing—_____. Only the first 3 quarters are reported because the 10-K reports annual information. Disclosures are less extensive than in the 10-K. The 10-Q is not required to be audited, but must be ____ by the independent auditor.
          • 3. Significant events affecting the company—____. example: material impairment, bankruptcy, entry or termination of a definitive agreement, changes in the registrant’s CPA, changes in control, etc.
          • 4. Management request to vote through proxy for shareholders at meetings—______. Proxy materials can address election of directors, changes in the corporate charter, issuance of new securities, plans for a major business combination, and the like.
• 3. Filing deadlines (see the attached image). Filing deadlines depend on ____ of the company. Company size is as follows:
  • 1. large accelerated filer—A company with worldwide market value of outstanding voting and nonvoting common equity held by nonaffiliates of ____ million or more.
  • 2. accelerated filer—A company with worldwide market value of outstanding voting and nonvoting common equity held by nonaffiliates that is _____ million or more but less than _____ million.
  • 3. non-accelerated filer—A company with worldwide market value of outstanding voting and nonvoting common equity held by nonaffiliates less than ____ million.

Answer 7

• 1. none.
• 2. forms:
     * 1. 10-K; 4
     
     • 1. none.
     • 2. none.
     • 3. management.
     • Those important aspects in MD&A include: firm’s financial condition, changes in financial condition, results of operations, liquidity, capital resources and operations, and indications in trends, significant events, and uncertainties.
       * 2. 10-Q; reviewed
       * 3. 8-K
       * 4. proxy statement
• 3. size.
     * $700
     * $75; $700
     * $75

Question 8

Corporate Governance:

• 1. The F__ C__ P__ Act of 1977 prohibits bribes of foreign governmental or political officials. It requires public companies to maintain internal control.
• 2. The _______ (SOX) contains provisions to enhance corporate governance and to mitigate financial accounting abuses. Significant provisions are:
     * 1. The SEC requires annual ____ of financial stmts.
     * 2. The auditing firm must be registered with the _______, a private-sector organization created by SOX. ______ has oversight authority for the PCAOB. ______ has oversight for auditing firms.
     * 3. Auditors are prohibited from providing ________ services to audit clients.
     * 4. Audit committees are required to be composed of _______ members of the board of directors, and the chair has to have ________.
     * 5. Annual filing must include a management’s report on the _____.
     * 6. There are increased penalties for fraud and white-collar crime. Willfully failing to maintain audit records for 5 years is a ____. Criminal charges can be brought against corporate officers who fail to certify financial reports or who willfully certify statements they know do not comply with SOX.

Answer 8

• 1. Foreign Corrupt Practices Act of 1977
• 2. Sarbanes-Oxley Act of 2002
     * 1. audits
     * 2. PCAOB (Public Company Accounting Oversight Board); SEC; PCAOB.
     * 3. non-audit.
     * 4. non-management; financial experience.
     * 5. internal controls.
     * 6. felony 重罪

Question 9

Must know what sections are included in 10-K:

• 1. Description of the b____.
• 2. Description of p___.
• 3. Legal proceedings involving the company.
• 4. Submission of matters to a vote of stockholders.
• 5. Market price of ______, dividends, and stockholder matters.
• 6. S___ financial data.
• 7. M____ of financial condition and results of operations.
• 8. Financial stmts & supplementary financial information.
• 9. Change in ______ with accountants on accounting & financial disclosure.
• 10. Directors & officers.
• 11. Executive _____ and transactions with executives.
• 12. Security o____ by certain beneficial owners and by management.
• 13. Certain relationships and related-party transactions.
• 14. Principal accountant f___ and s___.
• 15. Exhibits; signatures; certification.

Answer 9

• 1. business.
• 2. properties.
• 3. none.
• 4. none.
• 5. common stock.
• 6. Selected.
• 7. MD&A.
• 8. none.
• 9. disagreements.
• 10. none.
• 11. compensation.
• 12. ownership.
• 13. none.
• 14. fees and services.
• 15. none.