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Chapter 14 - SEC Reporting
Chapter 14 - SEC Reporting
Chapter 14
SEC Reporting
A. Option A
B. Option B
C. Option C
D. Option D
3. Which system helps the SEC accomplish its primary purpose of increasing the efficiency
and fairness of the securities markets by expediting the receipt, acceptance, dissemination,
and analysis of time-sensitive data filed with it?
A. EDI
B. ESEC
C. EDGAR
D. EMMA
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Chapter 14 - SEC Reporting
4. Which of the following divisions of the SEC regulates national securities exchanges,
brokers, and dealers of securities?
A. Division of Investment Management
B. Division of Corporation Finance
C. Division of Corporation Regulation
D. Division of Market Regulation
5. Which division of the SEC develops and administers the disclosure requirements for the
securities acts and reviews all registration statements and other issue-oriented disclosures?
A. Division of Enforcement
B. Division of Corporation Finance
C. Division of Investment Management
D. Division of Market Regulation
6. Identify the regulation that created an entity which insures investors from possible losses if
an investment house enters bankruptcy.
A. Federal Deposit Insurance Protection Act
B. Securities Investor Protection Act
C. Investment Advisers Act
D. Federal Bankruptcy Acts
8. Which regulation resulted in the creation of the Public Company Accounting Oversight
Board?
A. Investment Advisers Act
B. Securities Investor Protection Act
C. Sarbanes-Oxley Act
D. Trust Indenture Act
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Chapter 14 - SEC Reporting
9. Regulation S-X presents the rules for preparing all of the following except:
A. financial statements.
B. footnotes.
C. auditor's report.
D. management's discussion.
11. Which of the following presents the results of actions taken against accountants, brokers,
and other participants for filing false or misleading statements?
A. Financial Reporting Releases
B. Financial Reporting Interpretations
C. Accounting and Auditing Enforcement Releases
D. Staff Accounting Bulletins
12. Which of the following covers new or revised administrative practices and interpretations
used by the SEC staff in reviewing financial statements?
A. Securities Exchange Act releases
B. Exchange Act industry guides
C. Accounting and Auditing Enforcement Releases
D. Staff Accounting Bulletins
13. In the issuer's annual report, how many years of audited financial statements must be
presented?
I. Three years of audited income statements
II. Two years of audited balance sheets
III. Three years of audited statements of cash flows
A. I and II
B. II and III
C. I and III
D. I, II, and III
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Chapter 14 - SEC Reporting
14. Which of the following types of securities or securities transactions are exempt from the
need to be registered under the Securities Act of 1933?
I. Commercial paper with a maturity of nine months or less.
II. Intrastate issues in which the securities are offered and sold only within one state.
III. Securities exchanged by an issuer exclusively with its existing shareholders with no
commission charged.
A. I and II
B. II
C. I, II, and III
D. III
17. When deficiencies are found in a registration statement that must be corrected before the
securities may be offered for sale, which of the following is issued by the SEC?
A. An audit opinion
B. A comment letter
C. A customary review
D. A comfort letter
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Chapter 14 - SEC Reporting
21. Accountants are liable for any materially false or misleading information contained in the
registration statement filed with the SEC up to:
A. the date the registration statement is filed.
B. the date of the audit report.
C. the effective date of the registration statement.
D. the date securities are sold.
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Chapter 14 - SEC Reporting
22. Which of the following classes of information are included in the Form 10-K?
I. Management's discussion and analysis
II. Audited financial statements and footnotes
III. Auditor's opinion on the company's internal control system
A. I and II
B. I and III
C. II and III
D. I, II, and III
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Chapter 14 - SEC Reporting
27. Which of the following is defined as directly or indirectly having the power to vote the
shares or investment power to sell the security?
A. Proxy
B. Significant influence
C. Control
D. Beneficial ownership
28. Which of the following is true about the Foreign Corrupt Practices Act of 1977 (FCPA)?
I. Publicly held companies should maintain an adequate system of internal control.
II. Individuals associated with U.S. companies are prohibited from bribing foreign officials
for the purpose of securing a contract.
III. Compensating or agents' fees are disallowed under all circumstances.
A. I and II
B. II and II
C. I and III
D. I, II, and III
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Chapter 14 - SEC Reporting
30. What does an underwriter typically require from an accountant which indicates that the
company has fulfilled all the accounting requirements in the registration process?
A. A comment letter
B. An audit opinion
C. A "red herring" prospectus
D. A comfort letter
31. Which of the following acts requires that a trustee be appointed for sales of bonds,
debentures, and other debt securities of public corporations?
A. Securities Investor Protection Act
B. Trust Indenture Act
C. Investment Company Act
D. Investment Advisors Act
32. Which of the following choices best describes correct use of the forms indicated?
A. Option A
B. Option B
C. Option C
D. Option D
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Chapter 14 - SEC Reporting
34. Which of the following statements concerning the management discussion and analysis
(MD&A) of a company's financial condition is true?
I. It should cover the financial statements and other statistical data for the most recent three-
year time span.
II. It should make year-to-year comparisons of material changes in the line items.
III. Management need not explain the cause(s) of the material changes.
IV. Disclosure of material off-balance sheet transactions, arrangements, and obligations is
required in each annual and each quarterly report.
A. I, II, and IV
B. II and III
C. I, III, and IV
D. I, II, III, and IV
36. Which of the following statements concerning pro forma disclosures is not true?
A. They show the effects of major transactions that occur after the end of the fiscal period.
B. They show the effects of major transactions that have occurred during the year but are not
fully reflected in the company's historical cost financial statements.
C. The SEC requires these to be presented only when the company has made an unusual asset
exchange, or a restructuring of existing indebtedness.
D. They often take the form of summarized financial statements.
Essay Questions
14-9
Chapter 14 - SEC Reporting
37. The Securities Exchange Act of 1934 requires publicly held companies to file periodic
financial disclosures as updates of their economic activity. The three basic forms used for this
updating are Form 10-K, Form 10-Q, and Form 8-K.
Required:
Describe the information contained in each of the three basic forms noted above.
38. The items below are associated with the Securities and Exchange Commission. Describe
or explain each item as concisely as possible.
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Chapter 14 - SEC Reporting
Each of the following questions names an item. Select the correct description of the item
from this list. Indicate your selection by entering the letter of the description.
Descriptions
a. Provides preliminary information to investors about an upcoming issue.
b. Informs investors of an upcoming offering.
c. Required annual filing to the SEC.
d. Discloses unscheduled material events.
e. Includes amendments to the Securities Act, additional disclosure requirements, and other
current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination by the SEC of a registration statement.
g. Issued by the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities may be offered or sale.
h. Quarterly report to SEC.
i. Includes new or revised administrative practices and interpretations used in reviewing
financial statements.
j. Includes the results of actions taken against accountants or other participants because false
or misleading statements were filed.
k. Includes Regulations S-X and S-K.
39. Customary Review
40. Comment Letter
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Chapter 14 - SEC Reporting
42. "Tombstone ad"
43. Form 10-K
44. Form 10-Q
14-12
Chapter 14 - SEC Reporting
45. Form 8-K
14-13
Chapter 14 - SEC Reporting
49. The SEC administers many laws and regulations governing the information made in files
reports.
Required:
a) What is the difference in issues covered by Regulation S-X and Regulation S-K?
b) How do the issues covered by these regulations differ from the AAERs and SABs?
50. Companies issuing stock to the public have to aware of certain terms. Using complete
sentences define the following:
a) Comment Letter
b) Preliminary Prospectus.
c) Shelf Registration.
51. Both the FCPA (Foreign Corrupt Practices Act of 1977) and SOX (Sarbanes-Oxley Act of
2002) contain provisions related to Internal Control. Discuss some significant differences
between how the two acts impact internal control practices for publicly held companies.
14-14
Chapter 14 - SEC Reporting
52. Smithtown Distributors acquired Paul's Plumbing on January 15, 2008. Violet Flowers
acquired Frank's Farm on January 1, 2007. In the 12/31/07 financial statements filed with the
SEC, Smithtown included a Pro Forma disclosure and Violet did not. If both acquisitions
account for 100% of the common stock of the company acquired and are considered to be
material, then can both filings be considered proper?
A. Option A
B. Option B
C. Option C
D. Option D
14-15
Chapter 14 - SEC Reporting
3. Which system helps the SEC accomplish its primary purpose of increasing the efficiency
and fairness of the securities markets by expediting the receipt, acceptance, dissemination,
and analysis of time-sensitive data filed with it?
A. EDI
B. ESEC
C. EDGAR
D. EMMA
4. Which of the following divisions of the SEC regulates national securities exchanges,
brokers, and dealers of securities?
A. Division of Investment Management
B. Division of Corporation Finance
C. Division of Corporation Regulation
D. Division of Market Regulation
14-16
Chapter 14 - SEC Reporting
5. Which division of the SEC develops and administers the disclosure requirements for the
securities acts and reviews all registration statements and other issue-oriented disclosures?
A. Division of Enforcement
B. Division of Corporation Finance
C. Division of Investment Management
D. Division of Market Regulation
6. Identify the regulation that created an entity which insures investors from possible losses if
an investment house enters bankruptcy.
A. Federal Deposit Insurance Protection Act
B. Securities Investor Protection Act
C. Investment Advisers Act
D. Federal Bankruptcy Acts
8. Which regulation resulted in the creation of the Public Company Accounting Oversight
Board?
A. Investment Advisers Act
B. Securities Investor Protection Act
C. Sarbanes-Oxley Act
D. Trust Indenture Act
14-17
Chapter 14 - SEC Reporting
9. Regulation S-X presents the rules for preparing all of the following except:
A. financial statements.
B. footnotes.
C. auditor's report.
D. management's discussion.
11. Which of the following presents the results of actions taken against accountants, brokers,
and other participants for filing false or misleading statements?
A. Financial Reporting Releases
B. Financial Reporting Interpretations
C. Accounting and Auditing Enforcement Releases
D. Staff Accounting Bulletins
12. Which of the following covers new or revised administrative practices and interpretations
used by the SEC staff in reviewing financial statements?
A. Securities Exchange Act releases
B. Exchange Act industry guides
C. Accounting and Auditing Enforcement Releases
D. Staff Accounting Bulletins
14-18
Chapter 14 - SEC Reporting
13. In the issuer's annual report, how many years of audited financial statements must be
presented?
I. Three years of audited income statements
II. Two years of audited balance sheets
III. Three years of audited statements of cash flows
A. I and II
B. II and III
C. I and III
D. I, II, and III
14. Which of the following types of securities or securities transactions are exempt from the
need to be registered under the Securities Act of 1933?
I. Commercial paper with a maturity of nine months or less.
II. Intrastate issues in which the securities are offered and sold only within one state.
III. Securities exchanged by an issuer exclusively with its existing shareholders with no
commission charged.
A. I and II
B. II
C. I, II, and III
D. III
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Chapter 14 - SEC Reporting
17. When deficiencies are found in a registration statement that must be corrected before the
securities may be offered for sale, which of the following is issued by the SEC?
A. An audit opinion
B. A comment letter
C. A customary review
D. A comfort letter
14-20
Chapter 14 - SEC Reporting
21. Accountants are liable for any materially false or misleading information contained in the
registration statement filed with the SEC up to:
A. the date the registration statement is filed.
B. the date of the audit report.
C. the effective date of the registration statement.
D. the date securities are sold.
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Chapter 14 - SEC Reporting
22. Which of the following classes of information are included in the Form 10-K?
I. Management's discussion and analysis
II. Audited financial statements and footnotes
III. Auditor's opinion on the company's internal control system
A. I and II
B. I and III
C. II and III
D. I, II, and III
14-22
Chapter 14 - SEC Reporting
27. Which of the following is defined as directly or indirectly having the power to vote the
shares or investment power to sell the security?
A. Proxy
B. Significant influence
C. Control
D. Beneficial ownership
14-23
Chapter 14 - SEC Reporting
28. Which of the following is true about the Foreign Corrupt Practices Act of 1977 (FCPA)?
I. Publicly held companies should maintain an adequate system of internal control.
II. Individuals associated with U.S. companies are prohibited from bribing foreign officials
for the purpose of securing a contract.
III. Compensating or agents' fees are disallowed under all circumstances.
A. I and II
B. II and II
C. I and III
D. I, II, and III
30. What does an underwriter typically require from an accountant which indicates that the
company has fulfilled all the accounting requirements in the registration process?
A. A comment letter
B. An audit opinion
C. A "red herring" prospectus
D. A comfort letter
14-24
Chapter 14 - SEC Reporting
31. Which of the following acts requires that a trustee be appointed for sales of bonds,
debentures, and other debt securities of public corporations?
A. Securities Investor Protection Act
B. Trust Indenture Act
C. Investment Company Act
D. Investment Advisors Act
32. Which of the following choices best describes correct use of the forms indicated?
A. Option A
B. Option B
C. Option C
D. Option D
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Chapter 14 - SEC Reporting
34. Which of the following statements concerning the management discussion and analysis
(MD&A) of a company's financial condition is true?
I. It should cover the financial statements and other statistical data for the most recent three-
year time span.
II. It should make year-to-year comparisons of material changes in the line items.
III. Management need not explain the cause(s) of the material changes.
IV. Disclosure of material off-balance sheet transactions, arrangements, and obligations is
required in each annual and each quarterly report.
A. I, II, and IV
B. II and III
C. I, III, and IV
D. I, II, III, and IV
36. Which of the following statements concerning pro forma disclosures is not true?
A. They show the effects of major transactions that occur after the end of the fiscal period.
B. They show the effects of major transactions that have occurred during the year but are not
fully reflected in the company's historical cost financial statements.
C. The SEC requires these to be presented only when the company has made an unusual asset
exchange, or a restructuring of existing indebtedness.
D. They often take the form of summarized financial statements.
Essay Questions
14-26
Chapter 14 - SEC Reporting
37. The Securities Exchange Act of 1934 requires publicly held companies to file periodic
financial disclosures as updates of their economic activity. The three basic forms used for this
updating are Form 10-K, Form 10-Q, and Form 8-K.
Required:
Describe the information contained in each of the three basic forms noted above.
Form 10-K: Form 10-K must be filed within 60 days after the end of the company's fiscal
year-end. Although the report is broken into four parts, the general format is similar to the
company's annual report. Parts I, II, and III contain the financial statements, management
discussion and analysis, management report on internal control, auditor's report, and
condensed financial information disclosures, often incorporated by reference to the annual
report. Part IV contains additional schedules and exhibits. However, Form 10-K differs from
the annual report by providing specific information relevant to the security holders, discussion
of any disagreements with external auditors, management compensation and major ownership
blocks, and schedules detailing selected asset and liability accounts including accounts
receivable, property, plant, and equipment, the company's investments in other enterprises,
and indebtedness of the company and its affiliates.
Form 10-Q: Form 10-Q is the interim report of the SEC. It is due within 45 days after the end
of each quarter except the fourth quarter when the 10-K is issued. Part I of Form 10-Q
includes comparative financial statements prepared in accordance with APB Opinion No. 28,
but these interim statements need not be audited. Essentially the company provides financial
statements for the most recent quarter, cumulative statements from the beginning of the fiscal
period, and comparative statements for the preceding fiscal year. Part II of Form 10-Q is an
update on significant matters occurring since the last quarter. These include new legal
proceedings, changes in the rights of securities, defaults on senior securities, increases or
decreases in the number of securities outstanding, and other materially important events
affecting security holders.
Form 8-K: Form 8-K is used to disclose unscheduled material events. This form is due with 4
days after the occurrence of a "triggering event". The purpose of Form 8-K is to provide
public disclosure of these significant events on a relatively contemporaneous basis.
AACPA: Communication
AICPA: Reporting
14-27
Chapter 14 - SEC Reporting
38. The items below are associated with the Securities and Exchange Commission. Describe
or explain each item as concisely as possible.
14-28
Chapter 14 - SEC Reporting
AACPA: Communication
AICPA: Reporting
14-29
Chapter 14 - SEC Reporting
Each of the following questions names an item. Select the correct description of the item
from this list. Indicate your selection by entering the letter of the description.
Descriptions
a. Provides preliminary information to investors about an upcoming issue.
b. Informs investors of an upcoming offering.
c. Required annual filing to the SEC.
d. Discloses unscheduled material events.
e. Includes amendments to the Securities Act, additional disclosure requirements, and other
current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination by the SEC of a registration statement.
g. Issued by the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities may be offered or sale.
h. Quarterly report to SEC.
i. Includes new or revised administrative practices and interpretations used in reviewing
financial statements.
j. Includes the results of actions taken against accountants or other participants because false
or misleading statements were filed.
k. Includes Regulations S-X and S-K.
39. Customary Review
40. Comment Letter
14-30
Chapter 14 - SEC Reporting
42. "Tombstone ad"
43. Form 10-K
44. Form 10-Q
45. Form 8-K
14-31
Chapter 14 - SEC Reporting
14-32
Chapter 14 - SEC Reporting
49. The SEC administers many laws and regulations governing the information made in files
reports.
Required:
a) What is the difference in issues covered by Regulation S-X and Regulation S-K?
b) How do the issues covered by these regulations differ from the AAERs and SABs?
a) Regulation S-X presents the rules for preparing financial statements, footnotes, and the
auditor's report. Regulation S-K covers all nonfinancial items such, as management's
discussion and analysis of the company's operation and present financial position.
b) AAERs (Accounting and Auditing Enforcement Releases) and SABs (Staff Accounting
Bulletins) are issued by the SEC. The SABs allow staff to make announcements on technical
issues with which it is concerned as a result of reviews of SEC filings. AAERs present the
results of enforcement actions taken against accountants, brokers, and other participants in the
filing process.
AACPA: Communication
AICPA: Reporting
50. Companies issuing stock to the public have to aware of certain terms. Using complete
sentences define the following:
a) Comment Letter
b) Preliminary Prospectus.
c) Shelf Registration.
a) A comment letter is issued by the SEC to specify deficiencies that must be corrected prior
to the security being offered for sale.
b) A preliminary prospectus, also referred to as a red herring, provides tentative information
to investors about an upcoming issue.
c) The shelf registration allows a company with stock actively traded to establish a
registration statement which can be updated in a short period of time, 2 or 3 days, and then
issue more stock. The shelf registration is limited to 10 percent of the company's currently
outstanding stock. A company may in this manner choose an optimal period in which to sell
more stock.
AACPA: Communication
AICPA: Reporting
14-33
Chapter 14 - SEC Reporting
51. Both the FCPA (Foreign Corrupt Practices Act of 1977) and SOX (Sarbanes-Oxley Act of
2002) contain provisions related to Internal Control. Discuss some significant differences
between how the two acts impact internal control practices for publicly held companies.
The FCPA defined important aspects of a good internal control system to include:
1. strong budgetary controls,
2. an objective internal audit function,
3. an active audit committee from the company's board of directors, and
4. a review of the internal audit control system by the independent auditors.
SOX, Section 404, requires an internal control report to be filed by management reporting on
the existence and effectiveness of the company's internal control over financial reporting.
AACPA: Communication
AICPA: Critical Thinking
52. Smithtown Distributors acquired Paul's Plumbing on January 15, 2008. Violet Flowers
acquired Frank's Farm on January 1, 2007. In the 12/31/07 financial statements filed with the
SEC, Smithtown included a Pro Forma disclosure and Violet did not. If both acquisitions
account for 100% of the common stock of the company acquired and are considered to be
material, then can both filings be considered proper?
Pro forma statements can be used to show the effects of major transactions that occur after the
end of the fiscal period. The acquisition of Paul's Plumbing occurred after 12/31/07 so it is
proper for Smithtown to disclose the impact of this acquisition on its financial statements.
Violet should have reported the acquisition of Frank's Farm in its consolidated 12/31/07
financial statements.
AACPA: Communication
AICPA: Critical Thinking
14-34