Chapter 14 - SEC Reporting

Chapter 14 - SEC Reporting
Chapter 14
SEC Reporting

Multiple Choice Questions

1. The Securities and Exchange Commission is responsible for:

A. ption A
!. ption !
C. ption C
". ption "

#. $hich regulation created the Securities and Exchange Commission%
A. Securities Act of 1&''
!. Securities Exchange Act of 1&'4
C. (n)estment Compan* Act of 1&4+
". ,arn-St. ,ermain "epositor* (nstitutions Act of 1&-#

'. $hich s*stem helps the SEC accomplish its primar* purpose of increasing the efficienc*
and fairness of the securities mar.ets b* expediting the receipt/ acceptance/ dissemination/
and anal*sis of time-sensiti)e data filed 0ith it%
A. E"(
!. ESEC
C. E",AR
". E11A

14-1
4. $hich of the follo0ing di)isions of the SEC regulates national securities exchanges/
bro.ers/ and dealers of securities%
A. "i)ision of (n)estment 1anagement
!. "i)ision of Corporation 2inance
C. "i)ision of Corporation Regulation
". "i)ision of 1ar.et Regulation

3. $hich di)ision of the SEC de)elops and administers the disclosure re4uirements for the
securities acts and re)ie0s all registration statements and other issue-oriented disclosures%
A. "i)ision of Enforcement
C. "i)ision of (n)estment 1anagement

5. (dentif* the regulation that created an entit* 0hich insures in)estors from possible losses if
an in)estment house enters ban.ruptc*.
A. 2ederal "eposit (nsurance 6rotection Act
!. Securities (n)estor 6rotection Act
C. (n)estment Ad)isers Act
". 2ederal !an.ruptc* Acts

7. Regulation S-8 and Regulation S-9:
A. go)ern the preparation of financial statements and associated disclosures.
!. go)ern the registration re4uirements for pri)ate placements.
C. outline responsibilities for audit committees of publicl* held companies.
". prohibit artificial p*ramids of capital in public utilities.

-. $hich regulation resulted in the creation of the 6ublic Compan* Accounting )ersight
!oard%
A. (n)estment Ad)isers Act
C. Sarbanes-xle* Act
". Trust (ndenture Act

14-#
&. Regulation S-8 presents the rules for preparing all of the follo0ing except:
A. financial statements.
!. footnotes.
C. auditor:s report.
". management:s discussion.

1+. The preparation of 0hich of the follo0ing items is co)ered b* Regulation S-9%
A. "escriptions of business
!. 6ro forma disclosures
C. Schedules
". Reports of accountants

11. $hich of the follo0ing presents the results of actions ta.en against accountants/ bro.ers/
and other participants for filing false or misleading statements%
A. 2inancial Reporting Releases
!. 2inancial Reporting (nterpretations
C. Accounting and Auditing Enforcement Releases
". Staff Accounting !ulletins

1#. $hich of the follo0ing co)ers ne0 or re)ised administrati)e practices and interpretations
used b* the SEC staff in re)ie0ing financial statements%
A. Securities Exchange Act releases
!. Exchange Act industr* guides

1'. (n the issuer:s annual report/ ho0 man* *ears of audited financial statements must be
presented%
(. Three *ears of audited income statements
((. T0o *ears of audited balance sheets
(((. Three *ears of audited statements of cash flo0s
A. ( and ((
!. (( and (((
C. ( and (((
". (/ ((/ and (((

14-'
14. $hich of the follo0ing t*pes of securities or securities transactions are exempt from the
need to be registered under the Securities Act of 1&''%
(. Commercial paper 0ith a maturit* of nine months or less.
((. (ntrastate issues in 0hich the securities are offered and sold onl* 0ithin one state.
(((. Securities exchanged b* an issuer exclusi)el* 0ith its existing shareholders 0ith no
commission charged.
A. ( and ((
!. ((
C. (/ ((/ and (((
". (((

13. Regulation " of the SEC presents important exemptions from full registration
re4uirements for:
A. pri)ate placements.
!. issuances of securities b* sa)ings and loan associations.
C. issuances of securities b* common carriers regulated b* the (nterstate Commerce
Commission.
". foreign companies.

15. $hich of the follo0ing forms is the most comprehensi)e registration statement%
A. 2orm S-1
!. 2orm 2-#
C. 2orm S-'
". 2orm S-#

17. $hen deficiencies are found in a registration statement that must be corrected before the
securities ma* be offered for sale/ 0hich of the follo0ing is issued b* the SEC%
A. An audit opinion
!. A comment letter
C. A customar* re)ie0
". A comfort letter

14-4
1-. The purpose of a ;tombstone ad; is:
A. to inform in)estors an upcoming offering has been canceled.
!. to inform in)estors of an upcoming offering.
C. to inform in)estors an upcoming offering 0ill be dela*ed for '+ da*s.
". to inform in)estors securities 0ill be offered for sale after the compan* has responded to
the SEC:s comment letter.

1&. $hich of the follo0ing best describes a ;red herring; prospectus%
A. A shortened )ersion of registration 2orm S-1 a)ailable to those companies that alread*
ha)e publicl* traded securities.
!. A prospectus containing material irregularities and deficiencies.
C. 6reliminar* information pro)ided to in)estors about an upcoming issue/ and issued
bet0een the time a registration statement is presented to the SEC and its effecti)e date.
". "isclosure in the business press/ outlined in red/ informing in)estors of an upcoming
offering.

#+. $hich of the follo0ing obser)ations is true of the shelf registration rule%
A. (t is an option a)ailable to all listed companies.
!. Shelf registration is limited to #3 percent of the compan*:s currentl* outstanding stoc..
C. (t allo0s pri)ate placements of an unlimited amount of securities.
". (t allo0s large companies to select the optimal time to sell their stoc..

#1. Accountants are liable for an* materiall* false or misleading information contained in the
registration statement filed 0ith the SEC up to:
A. the date the registration statement is filed.
!. the date of the audit report.
C. the effecti)e date of the registration statement.
". the date securities are sold.

14-3
##. $hich of the follo0ing classes of information are included in the 2orm 1+-9%
(. 1anagement:s discussion and anal*sis
((. Audited financial statements and footnotes
(((. Auditor:s opinion on the compan*:s internal control s*stem
A. ( and ((
!. ( and (((
C. (( and (((
". (/ ((/ and (((

#'. $hich of the follo0ing statements concerning 2orm 1+-< is =T true%
A. (t is filed for all four 4uarters.
!. (t is the 4uarterl* report to the SEC.
C. (t contains an update on significant matters occurring since the last 4uarter.
". (t includes comparati)e financial statements prepared in accordance 0ith A6! #-.

#4. (nformation concerning the unexpected resignation of one or more of the registrant:s
directors 0ould be disclosed on 0hich of the follo0ing forms%
(. 2orm --<
((. 2orm --9
A. (
!. ((
C. !oth ( and ((
". =either ( nor ((

#3. 6rox* statements are:
A. filed b* an entit* that ac4uires a beneficial o0nership of more than 3 percent in a compan*.
!. interim financial statements need not be audited.
C. materials submitted to shareholders for )otes on corporate matters.
". used to disclose unscheduled material e)ents.

14-5
#5. Schedule 1'" is filed
A. b* entities that ac4uire a beneficial o0nership of more than 3 percent of a class of
registered e4uit* securities.
!. to broadl* report material information that is being pro)ided to securities anal*sts/ selected
institutional in)estors/ or others.
C. to disclose material items related to asset-bac.ed securities such as a bond issue.
". b* management to report the existence and effecti)eness of the compan*:s internal control
o)er financial reporting.

#7. $hich of the follo0ing is defined as directl* or indirectl* ha)ing the po0er to )ote the
shares or in)estment po0er to sell the securit*%
A. 6rox*
!. Significant influence
C. Control
". !eneficial o0nership

#-. $hich of the follo0ing is true about the 2oreign Corrupt 6ractices Act of 1&77 >2C6A?%
(. 6ublicl* held companies should maintain an ade4uate s*stem of internal control.
((. (ndi)iduals associated 0ith @.S. companies are prohibited from bribing foreign officials
for the purpose of securing a contract.
(((. Compensating or agents: fees are disallo0ed under all circumstances.
A. ( and ((
!. (( and ((
C. ( and (((
". (/ ((/ and (((

#&. According to the pro)isions of the Sarbanes-xle* Act/
A. accounting firms can pro)ide both audit and non-audit ser)ices to the same compan*.
!. the auditor should report directl* to/ and ha)e its 0or. o)erseen b*/ the compan*:s
management.
C. audit committees should be composed of non-management members of a compan*:s board
of directors.
". both the lead audit partner and the audit re)ie0 partner for publicl* held companies should
be rotated at least e)er* t0o *ears.

14-7
'+. $hat does an under0riter t*picall* re4uire from an accountant 0hich indicates that the
compan* has fulfilled all the accounting re4uirements in the registration process%
A. A comment letter
!. An audit opinion
C. A ;red herring; prospectus
". A comfort letter

'1. $hich of the follo0ing acts re4uires that a trustee be appointed for sales of bonds/
debentures/ and other debt securities of public corporations%
A. Securities (n)estor 6rotection Act
!. Trust (ndenture Act
C. (n)estment Compan* Act
". (n)estment Ad)isors Act

'#. $hich of the follo0ing choices best describes correct use of the forms indicated%

A. ption A
!. ption !
C. ption C
". ption "

''. The histor* of securities regulation can be traced to:
A. the stoc. mar.et crash of 1&#&.
!. medie)al times.
C. 1-
th
centur* creation of the =e0 Aor. Stoc. Exchange.
". 1-
th
centur* English 6arliament:s passage of the !ubbles Acts.

14--
'4. $hich of the follo0ing statements concerning the management discussion and anal*sis
>1"BA? of a compan*:s financial condition is true%
(. (t should co)er the financial statements and other statistical data for the most recent three-
*ear time span.
((. (t should ma.e *ear-to-*ear comparisons of material changes in the line items.
(((. 1anagement need not explain the cause>s? of the material changes.
(C. "isclosure of material off-balance sheet transactions/ arrangements/ and obligations is
re4uired in each annual and each 4uarterl* report.
A. (/ ((/ and (C
!. (( and (((
C. (/ (((/ and (C
". (/ ((/ (((/ and (C

'3. 6ro forma disclosures are:
A. used to disclose unscheduled material e)ents.
". ;0hat-if ; presentations often ta.ing the form of summariDed financial statements.

'5. $hich of the follo0ing statements concerning pro forma disclosures is not true%
A. The* sho0 the effects of maEor transactions that occur after the end of the fiscal period.
!. The* sho0 the effects of maEor transactions that ha)e occurred during the *ear but are not
full* reflected in the compan*:s historical cost financial statements.
C. The SEC re4uires these to be presented onl* 0hen the compan* has made an unusual asset
exchange/ or a restructuring of existing indebtedness.
". The* often ta.e the form of summariDed financial statements.

Essay Questions

14-&
'7. The Securities Exchange Act of 1&'4 re4uires publicl* held companies to file periodic
financial disclosures as updates of their economic acti)it*. The three basic forms used for this
updating are 2orm 1+-9/ 2orm 1+-</ and 2orm --9.
Re4uired:
"escribe the information contained in each of the three basic forms noted abo)e.

'-. The items belo0 are associated 0ith the Securities and Exchange Commission. "escribe
or explain each item as concisel* as possible.
>a? Customar* Re)ie0
>b? Comment Fetter
>c? ;Red Gerring; 6rospectus
>d? ;Tombstone Ad;
>e? 2inancial Reporting Releases
>f? Staff Accounting !ulletins
>g? Accounting and Auditing Enforcement Releases
>h? 1anagement:s "iscussion and Anal*sis

14-1+
Each of the follo0ing 4uestions names an item. Select the correct description of the item
from this list. (ndicate *our selection b* entering the letter of the description.
"escriptions
a. 6ro)ides preliminar* information to in)estors about an upcoming issue.
b. (nforms in)estors of an upcoming offering.
c. Re4uired annual filing to the SEC.
d. "iscloses unscheduled material e)ents.
e. (ncludes amendments to the Securities Act/ additional disclosure re4uirements/ and other
current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination b* the SEC of a registration statement.
g. (ssued b* the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities ma* be offered or sale.
h. <uarterl* report to SEC.
i. (ncludes ne0 or re)ised administrati)e practices and interpretations used in re)ie0ing
financial statements.
E. (ncludes the results of actions ta.en against accountants or other participants because false
or misleading statements 0ere filed.
.. (ncludes Regulations S-8 and S-9.

'&. Customar* Re)ie0

4+. Comment Fetter

14-11
41. ;Red Gerring; 6rospectus

4#. ;Tombstone ad;

4'. 2orm 1+-9

44. 2orm 1+-<

14-1#
43. 2orm --9

45. 2inancial Reporting Releases

47. Staff Accounting !ulletins

4-. Accounting and Auditing Enforcement Releases

14-1'
4&. The SEC administers man* la0s and regulations go)erning the information made in files
reports.
Re4uired:
a? $hat is the difference in issues co)ered b* Regulation S-8 and Regulation S-9%
b? Go0 do the issues co)ered b* these regulations differ from the AAERs and SA!s%

3+. Companies issuing stoc. to the public ha)e to a0are of certain terms. @sing complete
sentences define the follo0ing:
a? Comment Fetter
b? 6reliminar* 6rospectus.
c? Shelf Registration.

31. !oth the 2C6A >2oreign Corrupt 6ractices Act of 1&77? and S8 >Sarbanes-xle* Act of
#++#? contain pro)isions related to (nternal Control. "iscuss some significant differences
bet0een ho0 the t0o acts impact internal control practices for publicl* held companies.

14-14
3#. Smithto0n "istributors ac4uired 6aul:s 6lumbing on Hanuar* 13/ #++-. Ciolet 2lo0ers
ac4uired 2ran.:s 2arm on Hanuar* 1/ #++7. (n the 1#I'1I+7 financial statements filed 0ith the
SEC/ Smithto0n included a 6ro 2orma disclosure and Ciolet did not. (f both ac4uisitions
account for 1++J of the common stoc. of the compan* ac4uired and are considered to be
material/ then can both filings be considered proper%

Chapter 14 SEC Reporting Ans0er 9e*

Multiple Choice Questions

1. The Securities and Exchange Commission is responsible for:

A. ption A
B. ption !
C. ption C
". ption "

AACSB: Reflective Thinking
AICPA: Decision Making

14-13
#. $hich regulation created the Securities and Exchange Commission%
A. Securities Act of 1&''
B. Securities Exchange Act of 1&'4
C. (n)estment Compan* Act of 1&4+
". ,arn-St. ,ermain "epositor* (nstitutions Act of 1&-#


'. $hich s*stem helps the SEC accomplish its primar* purpose of increasing the efficienc*
and fairness of the securities mar.ets b* expediting the receipt/ acceptance/ dissemination/
and anal*sis of time-sensiti)e data filed 0ith it%
A. E"(
!. ESEC
C. E",AR
". E11A


4. $hich of the follo0ing di)isions of the SEC regulates national securities exchanges/
bro.ers/ and dealers of securities%
A. "i)ision of (n)estment 1anagement
C. "i)ision of Corporation Regulation
D. "i)ision of 1ar.et Regulation


14-15
3. $hich di)ision of the SEC de)elops and administers the disclosure re4uirements for the
securities acts and re)ie0s all registration statements and other issue-oriented disclosures%
A. "i)ision of Enforcement
B. "i)ision of Corporation 2inance
C. "i)ision of (n)estment 1anagement


5. (dentif* the regulation that created an entit* 0hich insures in)estors from possible losses if
an in)estment house enters ban.ruptc*.
A. 2ederal "eposit (nsurance 6rotection Act
B. Securities (n)estor 6rotection Act
C. (n)estment Ad)isers Act
". 2ederal !an.ruptc* Acts


7. Regulation S-8 and Regulation S-9:
A. go)ern the preparation of financial statements and associated disclosures.
!. go)ern the registration re4uirements for pri)ate placements.
C. outline responsibilities for audit committees of publicl* held companies.
". prohibit artificial p*ramids of capital in public utilities.


-. $hich regulation resulted in the creation of the 6ublic Compan* Accounting )ersight
!oard%
A. (n)estment Ad)isers Act
C. Sarbanes-xle* Act
". Trust (ndenture Act


14-17
&. Regulation S-8 presents the rules for preparing all of the follo0ing except:
A. financial statements.
!. footnotes.
C. auditor:s report.
D. management:s discussion.

AICPA: Reporting

1+. The preparation of 0hich of the follo0ing items is co)ered b* Regulation S-9%
A. "escriptions of business
!. 6ro forma disclosures
C. Schedules
". Reports of accountants

AICPA: Reporting

11. $hich of the follo0ing presents the results of actions ta.en against accountants/ bro.ers/
and other participants for filing false or misleading statements%
A. 2inancial Reporting Releases
!. 2inancial Reporting (nterpretations


1#. $hich of the follo0ing co)ers ne0 or re)ised administrati)e practices and interpretations
used b* the SEC staff in re)ie0ing financial statements%
A. Securities Exchange Act releases
!. Exchange Act industr* guides
D. Staff Accounting !ulletins


14-1-
1'. (n the issuer:s annual report/ ho0 man* *ears of audited financial statements must be
presented%
(. Three *ears of audited income statements
((. T0o *ears of audited balance sheets
(((. Three *ears of audited statements of cash flo0s
A. ( and ((
!. (( and (((
C. ( and (((
D. (/ ((/ and (((


14. $hich of the follo0ing t*pes of securities or securities transactions are exempt from the
need to be registered under the Securities Act of 1&''%
(. Commercial paper 0ith a maturit* of nine months or less.
((. (ntrastate issues in 0hich the securities are offered and sold onl* 0ithin one state.
(((. Securities exchanged b* an issuer exclusi)el* 0ith its existing shareholders 0ith no
commission charged.
A. ( and ((
!. ((
C. (/ ((/ and (((
". (((


13. Regulation " of the SEC presents important exemptions from full registration
re4uirements for:
A. pri)ate placements.
!. issuances of securities b* sa)ings and loan associations.
C. issuances of securities b* common carriers regulated b* the (nterstate Commerce
Commission.
". foreign companies.

AICPA: Reporting

14-1&
15. $hich of the follo0ing forms is the most comprehensi)e registration statement%
A. 2orm S-1
!. 2orm 2-#
C. 2orm S-'
". 2orm S-#

AICPA: Reporting

17. $hen deficiencies are found in a registration statement that must be corrected before the
securities ma* be offered for sale/ 0hich of the follo0ing is issued b* the SEC%
A. An audit opinion
B. A comment letter
C. A customar* re)ie0
". A comfort letter


1-. The purpose of a ;tombstone ad; is:
A. to inform in)estors an upcoming offering has been canceled.
B. to inform in)estors of an upcoming offering.
C. to inform in)estors an upcoming offering 0ill be dela*ed for '+ da*s.
". to inform in)estors securities 0ill be offered for sale after the compan* has responded to
the SEC:s comment letter.


14-#+
1&. $hich of the follo0ing best describes a ;red herring; prospectus%
A. A shortened )ersion of registration 2orm S-1 a)ailable to those companies that alread*
ha)e publicl* traded securities.
!. A prospectus containing material irregularities and deficiencies.
C. 6reliminar* information pro)ided to in)estors about an upcoming issue/ and issued
bet0een the time a registration statement is presented to the SEC and its effecti)e date.
". "isclosure in the business press/ outlined in red/ informing in)estors of an upcoming
offering.


#+. $hich of the follo0ing obser)ations is true of the shelf registration rule%
A. (t is an option a)ailable to all listed companies.
!. Shelf registration is limited to #3 percent of the compan*:s currentl* outstanding stoc..
C. (t allo0s pri)ate placements of an unlimited amount of securities.
D. (t allo0s large companies to select the optimal time to sell their stoc..


#1. Accountants are liable for an* materiall* false or misleading information contained in the
registration statement filed 0ith the SEC up to:
A. the date the registration statement is filed.
!. the date of the audit report.
C. the effecti)e date of the registration statement.
". the date securities are sold.

AICPA: Reporting

14-#1
##. $hich of the follo0ing classes of information are included in the 2orm 1+-9%
(. 1anagement:s discussion and anal*sis
((. Audited financial statements and footnotes
(((. Auditor:s opinion on the compan*:s internal control s*stem
A. ( and ((
!. ( and (((
C. (( and (((
D. (/ ((/ and (((

AICPA: Reporting

#'. $hich of the follo0ing statements concerning 2orm 1+-< is =T true%
A. (t is filed for all four 4uarters.
!. (t is the 4uarterl* report to the SEC.
C. (t contains an update on significant matters occurring since the last 4uarter.
". (t includes comparati)e financial statements prepared in accordance 0ith A6! #-.

AICPA: Reporting

#4. (nformation concerning the unexpected resignation of one or more of the registrant:s
directors 0ould be disclosed on 0hich of the follo0ing forms%
(. 2orm --<
((. 2orm --9
A. (
B. ((
C. !oth ( and ((
". =either ( nor ((

AICPA: Reporting

14-##
#3. 6rox* statements are:
A. filed b* an entit* that ac4uires a beneficial o0nership of more than 3 percent in a compan*.
". used to disclose unscheduled material e)ents.

AICPA: Reporting

#5. Schedule 1'" is filed
A. b* entities that ac4uire a beneficial o0nership of more than 3 percent of a class of
registered e4uit* securities.
!. to broadl* report material information that is being pro)ided to securities anal*sts/ selected
institutional in)estors/ or others.
C. to disclose material items related to asset-bac.ed securities such as a bond issue.
". b* management to report the existence and effecti)eness of the compan*:s internal control
o)er financial reporting.

AICPA: Reporting

#7. $hich of the follo0ing is defined as directl* or indirectl* ha)ing the po0er to )ote the
shares or in)estment po0er to sell the securit*%
A. 6rox*
!. Significant influence
C. Control
D. !eneficial o0nership

AICPA: Reporting

14-#'
#-. $hich of the follo0ing is true about the 2oreign Corrupt 6ractices Act of 1&77 >2C6A?%
(. 6ublicl* held companies should maintain an ade4uate s*stem of internal control.
((. (ndi)iduals associated 0ith @.S. companies are prohibited from bribing foreign officials
for the purpose of securing a contract.
(((. Compensating or agents: fees are disallo0ed under all circumstances.
A. ( and ((
!. (( and ((
C. ( and (((
". (/ ((/ and (((

AICPA: Reporting

#&. According to the pro)isions of the Sarbanes-xle* Act/
A. accounting firms can pro)ide both audit and non-audit ser)ices to the same compan*.
!. the auditor should report directl* to/ and ha)e its 0or. o)erseen b*/ the compan*:s
management.
C. audit committees should be composed of non-management members of a compan*:s board
of directors.
". both the lead audit partner and the audit re)ie0 partner for publicl* held companies should
be rotated at least e)er* t0o *ears.

AICPA: Reporting

'+. $hat does an under0riter t*picall* re4uire from an accountant 0hich indicates that the
compan* has fulfilled all the accounting re4uirements in the registration process%
A. A comment letter
!. An audit opinion
C. A ;red herring; prospectus
D. A comfort letter


14-#4
'1. $hich of the follo0ing acts re4uires that a trustee be appointed for sales of bonds/
debentures/ and other debt securities of public corporations%
A. Securities (n)estor 6rotection Act
B. Trust (ndenture Act
C. (n)estment Compan* Act
". (n)estment Ad)isors Act


'#. $hich of the follo0ing choices best describes correct use of the forms indicated%

A. ption A
!. ption !
C. ption C
". ption "

AICPA: Reporting

''. The histor* of securities regulation can be traced to:
A. the stoc. mar.et crash of 1&#&.
B. medie)al times.
C. 1-
th
centur* creation of the =e0 Aor. Stoc. Exchange.
". 1-
th
centur* English 6arliament:s passage of the !ubbles Acts.


14-#3
'4. $hich of the follo0ing statements concerning the management discussion and anal*sis
>1"BA? of a compan*:s financial condition is true%
(. (t should co)er the financial statements and other statistical data for the most recent three-
*ear time span.
((. (t should ma.e *ear-to-*ear comparisons of material changes in the line items.
(((. 1anagement need not explain the cause>s? of the material changes.
(C. "isclosure of material off-balance sheet transactions/ arrangements/ and obligations is
re4uired in each annual and each 4uarterl* report.
A. (/ ((/ and (C
!. (( and (((
C. (/ (((/ and (C
". (/ ((/ (((/ and (C


'3. 6ro forma disclosures are:
A. used to disclose unscheduled material e)ents.
D. ;0hat-if ; presentations often ta.ing the form of summariDed financial statements.


'5. $hich of the follo0ing statements concerning pro forma disclosures is not true%
A. The* sho0 the effects of maEor transactions that occur after the end of the fiscal period.
!. The* sho0 the effects of maEor transactions that ha)e occurred during the *ear but are not
full* reflected in the compan*:s historical cost financial statements.
C. The SEC re4uires these to be presented onl* 0hen the compan* has made an unusual asset
exchange/ or a restructuring of existing indebtedness.
". The* often ta.e the form of summariDed financial statements.


Essay Questions

14-#5
'7. The Securities Exchange Act of 1&'4 re4uires publicl* held companies to file periodic
financial disclosures as updates of their economic acti)it*. The three basic forms used for this
updating are 2orm 1+-9/ 2orm 1+-</ and 2orm --9.
Re4uired:
"escribe the information contained in each of the three basic forms noted abo)e.
2orm 1+-9: 2orm 1+-9 must be filed 0ithin 5+ da*s after the end of the compan*:s fiscal
*ear-end. Although the report is bro.en into four parts/ the general format is similar to the
compan*:s annual report. 6arts (/ ((/ and ((( contain the financial statements/ management
discussion and anal*sis/ management report on internal control/ auditor:s report/ and
condensed financial information disclosures/ often incorporated b* reference to the annual
report. 6art (C contains additional schedules and exhibits. Go0e)er/ 2orm 1+-9 differs from
the annual report b* pro)iding specific information rele)ant to the securit* holders/ discussion
of an* disagreements 0ith external auditors/ management compensation and maEor o0nership
bloc.s/ and schedules detailing selected asset and liabilit* accounts including accounts
recei)able/ propert*/ plant/ and e4uipment/ the compan*:s in)estments in other enterprises/
and indebtedness of the compan* and its affiliates.
2orm 1+-<: 2orm 1+-< is the interim report of the SEC. (t is due 0ithin 43 da*s after the end
of each 4uarter except the fourth 4uarter 0hen the 1+-9 is issued. 6art ( of 2orm 1+-<
includes comparati)e financial statements prepared in accordance 0ith A6! pinion =o. #-/
but these interim statements need not be audited. Essentiall* the compan* pro)ides financial
statements for the most recent 4uarter/ cumulati)e statements from the beginning of the fiscal
period/ and comparati)e statements for the preceding fiscal *ear. 6art (( of 2orm 1+-< is an
update on significant matters occurring since the last 4uarter. These include ne0 legal
proceedings/ changes in the rights of securities/ defaults on senior securities/ increases or
decreases in the number of securities outstanding/ and other materiall* important e)ents
affecting securit* holders.
2orm --9: 2orm --9 is used to disclose unscheduled material e)ents. This form is due 0ith 4
da*s after the occurrence of a ;triggering e)ent;. The purpose of 2orm --9 is to pro)ide
public disclosure of these significant e)ents on a relati)el* contemporaneous basis.

AACPA: Communication
AICPA: Reporting

14-#7
'-. The items belo0 are associated 0ith the Securities and Exchange Commission. "escribe
or explain each item as concisel* as possible.
>b? Comment Fetter
>d? ;Tombstone Ad;
14-#-
A customar* re)ie0 is a thorough examination made b* the staff of the SEC of a registration
statement.
>b? Comment Fetter
A comment letter contains the deficiencies that must be corrected in a registration statement
before the securities ma* be offered for sale.
A ;red herring; prospectus pro)ides preliminar* information to in)estors about an upcoming
issue. The name red herring comes from the red in. used on the co)er of this preliminar*
prospectus indicating it is not an offering statement and the securities being discussed are not
*et a)ailable for sale.
>d? ;Tombstone Ad;
A tombstone ad appears in the business press to inform in)estors of an upcoming offering.
These ads are bordered in blac. in./ thus the title tombstone ad.
2inancial Reporting Releases include amendments to the Securities Act/ additional disclosure
re4uirements/ and other current issues regarding accounting and auditing principles and
standards.
Staff Accounting !ulletins are ne0 or re)ised administrati)e practices and interpretations
used b* the Commission:s staff in re)ie0ing financial statements.
The Accounting and Auditing Enforcement Releases >AAERs? present the results of
enforcement actions ta.en against accountants/ bro.ers/ and other participants in the filing
process. The* include discussion of the findings and opinions/ including sanctions against the
accountants in)ol)ed/ and enforcement hearings held b* the Commission.
1anagement:s "iscussion and Anal*sis is one of the fi)e classes of information comprising
the !asic (nformation 6ac.age. The 1"A consists of an anal*sis of the compan*:s financial
condition and changes in financial condition. The focus is on the discussion of the compan*:s
present and future prospects for li4uidit*/ capital resources/ and changes in operations.
1anagement must disclose unused lines of credit/ capital budgeting plans/ and must perform a
line-b*-line anal*sis of the causes for changes in the financial statements presented.

AICPA: Reporting

14-#&
Each of the follo0ing 4uestions names an item. Select the correct description of the item
from this list. (ndicate *our selection b* entering the letter of the description.
"escriptions
a. 6ro)ides preliminar* information to in)estors about an upcoming issue.
b. (nforms in)estors of an upcoming offering.
c. Re4uired annual filing to the SEC.
d. "iscloses unscheduled material e)ents.
e. (ncludes amendments to the Securities Act/ additional disclosure re4uirements/ and other
current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination b* the SEC of a registration statement.
g. (ssued b* the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities ma* be offered or sale.
h. <uarterl* report to SEC.
i. (ncludes ne0 or re)ised administrati)e practices and interpretations used in re)ie0ing
E. (ncludes the results of actions ta.en against accountants or other participants because false
or misleading statements 0ere filed.
.. (ncludes Regulations S-8 and S-9.

'&. Customar* Re)ie0
f


4+. Comment Fetter
g


14-'+
41. ;Red Gerring; 6rospectus
a


4#. ;Tombstone ad;
b


4'. 2orm 1+-9
c


44. 2orm 1+-<
h


43. 2orm --9
d


14-'1
45. 2inancial Reporting Releases
e


47. Staff Accounting !ulletins
i


4-. Accounting and Auditing Enforcement Releases
E


14-'#
4&. The SEC administers man* la0s and regulations go)erning the information made in files
reports.
Re4uired:
a? $hat is the difference in issues co)ered b* Regulation S-8 and Regulation S-9%
b? Go0 do the issues co)ered b* these regulations differ from the AAERs and SA!s%
a? Regulation S-8 presents the rules for preparing financial statements/ footnotes/ and the
auditor:s report. Regulation S-9 co)ers all nonfinancial items such/ as management:s
discussion and anal*sis of the compan*:s operation and present financial position.
b? AAERs >Accounting and Auditing Enforcement Releases? and SA!s >Staff Accounting
!ulletins? are issued b* the SEC. The SA!s allo0 staff to ma.e announcements on technical
issues 0ith 0hich it is concerned as a result of re)ie0s of SEC filings. AAERs present the
results of enforcement actions ta.en against accountants/ bro.ers/ and other participants in the
filing process.

AICPA: Reporting

3+. Companies issuing stoc. to the public ha)e to a0are of certain terms. @sing complete
sentences define the follo0ing:
a? Comment Fetter
b? 6reliminar* 6rospectus.
c? Shelf Registration.
a? A comment letter is issued b* the SEC to specif* deficiencies that must be corrected prior
to the securit* being offered for sale.
b? A preliminar* prospectus/ also referred to as a red herring/ pro)ides tentati)e information to
in)estors about an upcoming issue.
c? The shelf registration allo0s a compan* 0ith stoc. acti)el* traded to establish a
registration statement 0hich can be updated in a short period of time/ # or ' da*s/ and then
issue more stoc.. The shelf registration is limited to 1+ percent of the compan*:s currentl*
outstanding stoc.. A compan* ma* in this manner choose an optimal period in 0hich to sell
more stoc..

AICPA: Reporting

14-''
31. !oth the 2C6A >2oreign Corrupt 6ractices Act of 1&77? and S8 >Sarbanes-xle* Act of
#++#? contain pro)isions related to (nternal Control. "iscuss some significant differences
bet0een ho0 the t0o acts impact internal control practices for publicl* held companies.
The 2C6A defined important aspects of a good internal control s*stem to include:
1. strong budgetar* controls/
#. an obEecti)e internal audit function/
'. an acti)e audit committee from the compan*:s board of directors/ and
4. a re)ie0 of the internal audit control s*stem b* the independent auditors.
S8/ Section 4+4/ re4uires an internal control report to be filed b* management reporting on
the existence and effecti)eness of the compan*:s internal control o)er financial reporting.

AICPA: Critical Thinking

3#. Smithto0n "istributors ac4uired 6aul:s 6lumbing on Hanuar* 13/ #++-. Ciolet 2lo0ers
ac4uired 2ran.:s 2arm on Hanuar* 1/ #++7. (n the 1#I'1I+7 financial statements filed 0ith the
SEC/ Smithto0n included a 6ro 2orma disclosure and Ciolet did not. (f both ac4uisitions
account for 1++J of the common stoc. of the compan* ac4uired and are considered to be
material/ then can both filings be considered proper%
6ro forma statements can be used to sho0 the effects of maEor transactions that occur after the
end of the fiscal period. The ac4uisition of 6aul:s 6lumbing occurred after 1#I'1I+7 so it is
proper for Smithto0n to disclose the impact of this ac4uisition on its financial statements.
Ciolet should ha)e reported the ac4uisition of 2ran.:s 2arm in its consolidated 1#I'1I+7

AICPA: Critical Thinking

14-'4

Chapter 14 - SEC Reporting

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