Deck 12: Financial Reporting and the Securities and Exchange Commission

Question 1

The goals of the SEC include all except which one of the following?

A) prohibiting the dissemination of materially misstated information.
B) controlling the number of companies whose stock is listed on major stock exchanges.
C) regulating the operation of securities markets.
D) ensuring that full and fair information is disclosed to all investors before the securities of a company are allowed to be bought and sold.
E) preventing the misuse of information especially by inside parties.

Answer 1

B

Question 2

Which of the following are issued by the SEC, as needed, to supplement Regulation S-X and Regulation S-K?

A) SABs.
B) ASRs.
C) FRRs.
D) ARBs.
E) SRBs.

Answer 2

C

Question 3

The SEC has usually restricted its role in establishing accounting principles to

A) specifying the information that should be included in interim financial statements.
B) developing definitions of key accounting terms.
C) developing accounting standards for particular industries.
D) determining required disclosures.
E) the promulgation and issuance of SASs (Securities Accounting Standards).

Answer 3

D

Question 4

Which one of the following is not a division of the SEC?

A) the Division of Corporation Finance.
B) the Division of Investment Management.
C) the Division of Compliance Information.
D) the Division of Enforcement.
E) the Division of Trading and Markets.

Question 5

Regulation S-K:

A) controls the listing of securities by stock exchanges.
B) establishes requirements for nonfinancial information to be filed with the SEC.
C) prescribes the form of financial statements to be filed with the SEC.
D) describes the internal controls a publicly traded company must maintain.
E) prescribes the financial disclosure information that must be included in filings with the SEC.

Question 6

What is Form 10-K?

A) a quarterly report filed with the SEC.
B) an annual report filed with the SEC.
C) a semiannual report filed with the SEC.
D) a form filed with the SEC before the company issues stock for the first time.
E) a form filed with the SEC before issuing stocks to acquire another company.

Question 7

Regulation S-X specifies:

A) requirements for the nonfinancial information to be filed with the SEC.
B) which form a company must file to register new securities.
C) that the financial statements included in a company's annual report must be audited.
D) the form and content of financial statements to be filed with the SEC.
E) the internal controls a publicly traded company must maintain.

Question 8

Which one of the following forms is used when no other form is prescribed?

A) S-4.
B) S-3.
C) S-11.
D) S-8.
E) S-1.

Question 9

The prospectus part of a registration contains all except which of the following?

A) financial statements for the issuing company audited by an independent CPA along with appropriate supplementary data.
B) an explanation of the intended use of the proceeds to be generated by the sale of the new securities.
C) a description of the risks associated with the securities.
D) a description of the business and the properties owned by the company.
E) additional data concerning expenses of issuance.

Question 10

A letter of comments would be issued by the SEC

A) to request clarification of a registration statement.
B) to convey your pertinent comments to the SEC.
C) in response to a company's filing of Form 8-K.
D) after receiving the company's Form 10-K.
E) to indicate that a registration statement has been approved.

Question 11

Which of the following securities offerings is not exempt from registration prior to their sale?

A) offerings of more than $5 million.
B) securities issued by governments.
C) securities issued by banks.
D) securities issued by savings and loan associations.
E) offerings of no more than $1 million made to any number of investors within a 12-month period.

Question 12

Lechter Co. is preparing to issue stock. Its revenues for last year were $85,000,000, and it had $52,000,000 in stock held by non-affiliates. The company had been filing with the SEC for eight years. Which one of the following forms should have been used for registration?

A) S-1.
B) S-3.
C) S-4.
D) S-8.
E) S-11.

Question 13

When must Form 8-K be filed with the SEC?

A) within forty-five days of the end of any quarter other than the fourth quarter of the fiscal year.
B) within ninety days of the end of the fiscal year.
C) within fifteen days of the occurrence of certain significant events.
D) within sixty days of the end of the fiscal year.
E) when a relatively small company intends to issue securities.

Question 14

Which one of the following is not a prescribed event for the filing of Form 8-K?

A) bankruptcy or receivership.
B) changes in control of the registrant.
C) resignation of a middle manager.
D) changes in the registrant's independent auditor.
E) acquisitions or dispositions of assets.

Question 15

A wrap-around filing:

A) may be used by large companies to sell securities over a period of two years without refiling with the SEC.
B) is a simplified registration procedure for securities to be issued by small companies.
C) allows a company to simplify its form 10-K by referring to information in its annual report.
D) is a filing completed using the SEC's electronic filing system.
E) may remain in effect for a period of one to five years.

Question 16

Which one of the following Federal laws was enacted in 1935?

A) Securities Act.
B) Securities Exchange Act.
C) Trust Indenture Act.
D) Investment Company Act.
E) Public Utility Holding Company Act.

Question 17

A proxy statement must be filed with the SEC at least how many days before being distributed?

A) 30.
B) 60.
C) 10.
D) 90.
E) 7.

Question 18

The SEC's operating costs are supported through

A) tax revenues of the federal government.
B) registration fees charged to issuers offering securities to the public.
C) fees paid by stock exchanges.
D) fees paid by stock brokers.
E) fees paid by accounting firms that practice before the SEC.

Question 19

Information required in proxy statements includes all except which of the following?

A) listing of company directors and executive officers.
B) description of the business activities including principal products and sources and availability of raw materials.
C) market price of the company's common stock for each quarterly period within the two most recent fiscal years.
D) five-year summary of operations including sales, total assets, income from continuing operations, and cash dividends per share.
E) two-year summary of industry segments, export sales, and foreign and domestic operations.

Question 20

Which one of the following registration statement forms is used by large issuers that already have at least $75 million voting stock held by non-affiliates?

A) S-11.
B) S-3.
C) S-8.
D) S-4.
E) S-1.

Question 21

Which one of the following requires the audit committee to be responsible for the appointment and compensation of the external auditor?

A) The Securities Act of 1933.
B) The Securities Exchange Act of 1934.
C) The Investment Company Act of 1940.
D) The Foreign Corrupt Practices Act of 1977.
E) The Sarbanes-Oxley Act of 2002.

Question 22

EDGAR stands for:

A) Electronic Debits, Gains, Assets and Revenues System.
B) Electronic Data Gathering, Analysis, and Retrieval System.
C) Explanatory Data Gathering, Analysis, and Retrieval System.
D) Explanatory Debits, Gains, Assets and Revenues System.
E) Electronic Data, Gross Analysis, and Revenues System.

Question 23

Which one of the following regulates the subsequent trading of securities through brokers and exchanges?

A) The Securities Act of 1933.
B) The Securities Exchange Act of 1934.
C) The Investment Company Act of 1940.
D) The Investment Advisers Act of 1940.
E) The Sarbanes-Oxley Act of 2002.

Question 24

Which statement is false regarding the Public Company Accounting Oversight Board (PCAOB)?

A) regulates audit standards and independent audit firms.
B) has five members appointed by the SEC.
C) allows all members to be accountants, past or present.
D) is under the oversight and enforcement of the SEC.
E) is funded by fees levied on all publicly traded companies.

Question 25

Which one of the following requires the registration of mutual funds that engage in investing and trading in securities?

A) The Securities Act of 1933.
B) The Securities Exchange Act of 1934.
C) The Investment Company Act of 1940.
D) The Foreign Corrupt Practices Act of 1977.
E) The Sarbanes-Oxley Act of 2002.

Question 26

Filings with the SEC are divided generally into two broad categories:

A) Registration statements and perpetual filings.
B) Reconciliation statements and periodic filings.
C) Registration statements and periodic filings.
D) Registration filings and reconciliation statements.
E) Reconciliation filings and perpetual filings.

Question 27

Which of the following is not a security as defined by the SEC?

A) Accounts receivable.
B) Notes receivable.
C) Treasury stock.
D) Debenture.
E) Investment contract.

Question 28

What information is required in proxy statements?
(1) Five-year summary of operations.
(2) Five-year summary of industry segments.
(3) Listing of company directors and executive officers.
(4) Management discussion and analysis (MD&A).

A) 1, 2 and 3.
B) 2, 3 and 4.
C) 1, 3 and 4.
D) 1, 2 and 4.
E) 1, 2, 3, and 4.

Question 29

What is private placement of securities?

A) A procedure that allows a company to register securities and then sell them over a period of two years without reregistering.
B) A procedure that allows the sale of securities to a small group of sophisticated knowledgeable investors, without any general solicitation.
C) A method of filing Form 10-K with the SEC.
D) the registration of mutual funds that engage in investing and trading securities.
E) A sale of securities to 35 or fewer accredited investors.

Question 30

What is the minimum net worth of those who are considered accredited investors?

A) $200,000.
B) $400,000.
C) $500,000.
D) $1,000,000.
E) $2,000,000.

Question 31

How has the SEC exercised its power with regard to the continuing evolution of accounting principles?
1) Issuing Financial Reporting Releases (FRRs).
2) Requiring additional disclosures in notes to financial statements.
3) Declaring a moratorium on the use of specified accounting practices.
4) Overruling the FASB.

A) 1 and 4.
B) 1, 3, and 4.
C) 1 and 3.
D) 1, 2, and 4.
E) 1, 2, 3, and 4.

Question 32

What information needs to be included in Form 10-Q?
1) Income statements for the most recent quarter and for the year to date as well as for the comparative periods in the previous year.
2) Income statements for the most recent quarter and for the year to date as well as for the comparative periods in the previous two years.
3) A statement of cash flows is mandatory, but only for the year to date as well as for the corresponding period in the preceding year.
4) Two balance sheets: one for the end of the most recent quarter and one showing the company's financial position at the end of the previous fiscal year.

A) 1 and 3.
B) 2, 3, and 4.
C) 1 and 2.
D) 1, 3, and 4.
E) 2 and 4.

Question 33

Which one of the following regulates the initial offering of securities by a company or underwriter?

A) The Securities Act of 1933.
B) The Securities Exchange Act of 1934.
C) The Investment Company Act of 1940.
D) The Investment Advisers Act of 1940.
E) The Sarbanes-Oxley Act of 2002.

Question 34

Which one of the following requires the maintenance of accounting records and adequate internal accounting controls?

A) The Securities Act of 1933.
B) The Securities Exchange Act of 1934.
C) The Investment Company Act of 1940.
D) The Foreign Corrupt Practices Act of 1977.
E) The Sarbanes-Oxley Act of 2002.

Question 35

Which statement is false regarding the registration of public accounting firms with the PCAOB under the Sarbanes-Oxley Act?

A) Registration is required of all U.S. firms that prepare, issue, or participate in the preparation of an audit report for an entity that issues securities.
B) Foreign accounting firms are exempt from registration.
C) Disclosure requirements include annual fees received from each issuer for the firm's audit and non-audit services.
D) The Public Company Accounting Oversight Board subjects registered firms to periodic inspections.
E) Information regarding disagreements between the issuer and the audit firm during the previous year must be disclosed.

Question 36

Which one of the following forms is used when companies have filed with the SEC for less than 36 months but are not large enough to file form S-3?

A) S-1.
B) S-4.
C) S-11.
D) S-8.
E) S-3.

Question 37

What is the primary focus of the Sarbanes-Oxley Act?

A) Accounting standards and the registration of securities.
B) Regulation of the continuous reporting by publicly owned companies.
C) Accounting standards and registration of investment companies that engage in investing and trading in securities.
D) Accounting standards and penalties against persons who profit from illegal use of inside information.
E) Regulation of independent audit firms and audit standards.

Question 38

Which one of the following is not a characteristic of the Public Company Accounting Oversight Board?

A) Minimizes self-regulation in the accounting profession.
B) Has the authority to amend, modify, repeal, or reject any audit standard of the ASB.
C) Only one member can be an accountant, past or present.
D) SEC has oversight and enforcement authority over the Board.
E) Enforces auditing, quality control, and independence standards and rules.

Question 39

What is shelf registration?

A) a procedure that allows the sale of securities to a small group of knowledgeable investors without any general solicitation.
B) a procedure that allows a company to register securities and then sell them over a period of two years without reregistering.
C) a method of filing Form 10-K with the SEC.
D) the registration of mutual funds that engage in investing and trading securities.
E) the registration of securities issued in connection with business combination transactions.

Question 40

Which information is not contained in the prospectus of the registration statement?

A) financial statements reviewed by an independent CPA.
B) an explanation of the intended use of the proceeds.
C) a description of the risks associated with the securities.
D) a description of the business of the registrant.
E) a description of the properties of the registrant.

Question 41

What is blue sky legislation?

Question 42

When is the SEC's Registration Form S-4 used?

Question 43

What is a private placement of securities?

Question 44

What is a wrap-around filing?

Question 45

How are the operations of the SEC funded?

Question 46

What is included in Part I of a securities registration statement?

Question 47

What is the purpose of the SEC's Regulation S-K?

Question 48

What was the purpose of the Securities Exchange Act of 1934?

Question 49

For each of the following situations, select the best answer concerning information forms filed with the SEC:
(A.) Form 10-K
(B.) Form 10-Q
(C.) Form 8-K
(D.) Not required
___ 1. A unique or significant happening.
___ 2. Annual information required by Regulation S-X.
___ 3. Changes in control of the registrant.
___ 4. Interim financial statements.
___ 5. Fourth quarter income statement.
___ 6. Bankruptcy.
___ 7. Annual information required by Regulation S-K.
___ 8. Income statement for the current quarter, year-to-date, and comparative periods in the previous year.
___ 9. Changes in bookkeeping staff.
___ 10. Changes in the registrant's external auditor.

Question 50

What is included in Part II of a securities registration statement?

Question 51

Which one of the following forms is used in connection with employee stock plans?

A) S-8.
B) S-3.
C) S-4.
D) S-1.
E) S-11.

Question 52

Why is the SEC's Rule 14c-3 important to the accounting profession?

Question 53

Audited financial statements in an annual report of an issuer that is subject to SEC regulation must include:

A) three balance sheets, three income statements, and three statements of cash flows.
B) three balance sheets, two income statements, and two statements of cash flows.
C) one balance sheet, one income statement, and one statement of cash flows.
D) two balance sheets, three income statements, and three statements of cash flows.
E) two balance sheets, two income statements, and two statements of cash flows.

Question 54

The SEC's role in the initial registration of securities to be publicly issued is:

A) to ensure that the content of the registration filing is in compliance with securities regulations.
B) to ensure that securities issued are quality investments.
C) to provide data to the public regarding first-time issuance of securities.
D) to give permission to an independent CPA firm to audit the registrant's financial statements.
E) to make the registrant's annual report available for public viewing.

Question 55

What are accredited investors?

Question 56

What was the purpose of the Securities Act of 1933?

Question 57

What is shelf registration?

Question 58

Which one of the following forms is used in connection with registration of securities of real estate companies?

A) S-8.
B) S-1.
C) S-4.
D) S-3.
E) S-11.

Question 59

The audit committee of an entity subject to SEC regulation will do all of the following except:

A) be responsible for agreeing to fee compensation of the independent audit firm.
B) sign certification of the annual financial statements.
C) be comprised only of individuals who are not members of management.
D) approve non-audit services provided by the independent audit firm.
E) serve as liaison between the board of directors and the independent audit firm.

Question 60

Which one of the following forms is used in connection with registration of securities of a small reporting company with $25 million of annual revenues and of $25 million of voting securities held by non-affiliates?

A) S-8.
B) S-11.
C) S-4.
D) S-1.
E) S-3.

Question 61

Name the two broad categories of filings with the SEC.

Question 62

What Federal agency has Congressional responsibility to create auditing and accounting standards?

Question 63

What are some of the reasons for the corporate scandals of 2001 and 2002?

Question 64

How has the Sarbanes-Oxley Act of 2002 changed the role of the audit committee?

Question 65

Who has the responsibility for the evaluation of the quality of an investment?

Question 66

What is required by the Trust Indenture Act of 1939?

Question 67

What information needs to be included in Form 10-Q?

Question 68

Describe the two parts of the SEC registration statement.

Question 69

Why was the Public Utility Holding Company Act of 1935 created?

Question 70

Name five securities offerings exempt from registration with the SEC.

Question 71

What is a proxy? Briefly explain the importance of a proxy solicitation.

Question 72

What is the primary focus of the Sarbanes-Oxley Act of 2002?

Question 73

What are the responsibilities of the SEC's Division of Corporation Finance?

Question 74

What are the four interconnected goals that the SEC has tried to achieve?

Question 75

Briefly describe Regulation S-K. What is its purpose?

Question 76

What information is required in proxy statements?

Question 77

When must Form 8-K be filed with the SEC?