Deck 12: A: Financial Reporting and the Securities and Exchange Commission

Question 1

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.

Answer 1

C

Question 2

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 may be bought and sold.
E) Preventing the misuse of information especially by inside parties.

Answer 2

B

Question 3

When would a letter of comments 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.

Answer 3

A

Question 4

A wraparound filing:

A) May be used by large companies to sell securities over a period of two years without re-filing with the SEC.
B) Is a simplified registration procedure for securities to be issued by small companies.
C) Allows a company to simplify its periodic filing by attaching its annual report to Form 10-K.
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 5

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 6

The SEC's operating costs are supported through

A) Tax revenues of the federal government.
B) Registration fees from issuers offering securities to the public.
C) Fees paid by stock exchanges.
D) Fees paid by stockbrokers.
E) Fees paid by accounting firms that practice before the SEC.

Question 7

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

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

Question 8

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 9

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 two 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 10

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).

Question 11

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 12

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

A) Securities issued to a company's board of directors.
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 13

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 14

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 15

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

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

Question 16

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 17

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 18

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 19

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.

Question 20

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 21

What is a sophisticated investor?

A) An investor with a net worth equal to or exceeding $1,000,000.
B) An investor holding an active CPA license.
C) An investor with a portfolio of 50 or more securities.
D) An investor having knowledge and experience in financial matters.
E) An investor currently serving as an audit committee member.

Question 22

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 necessary, 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 23

Which one of the following prohibits fraudulent and unfair behavior such as sales practice abuses and insider trading?

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

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 large companies to register securities with the SEC and then sell them over a period of two years without registering again within that period.
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 25

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

A) A listing of directors and executive officers.
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 26

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-8.
B) S-6.
C) S-4.
D) S-1.
E) S-11.

Question 27

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 28

Which statement is false regarding the registration of public accounting firms with the PCAOB?

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 29

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 30

What is a 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 31

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 32

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 33

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 34

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 35

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 36

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 37

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 38

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

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

Question 39

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) Insider Trading Sanctions Act of 1984.

Question 40

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 no more than 35 sophisticated knowledgeable investors, with no general solicitation allowed.
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 no more than 50 accredited investors, with no general solicitation allowed.

Question 41

When must Form 8-K be filed with the SEC and in what situations must this form be used?

Question 42

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

Question 43

What is a private placement of securities?

Question 44

For each of the following situations, identify the type of form to be filed with the SEC for disclosure purposes:
(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 independent auditor.

Question 45

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

Question 46

For what purpose is the SEC's Registration Form S-4 used?

Question 47

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

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

Question 48

How are the operations of the SEC funded?

Question 49

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

Question 50

What is a wraparound filing?

Question 51

What is blue sky legislation?

Question 52

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

Question 53

What was the purpose of the Securities Act of 1933?

Question 54

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

Question 55

Which 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-3.
C) S-4.
D) S-1
E) S-11.

Question 56

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 57

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) Certify 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 58

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 59

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 60

What is shelf registration?

Question 61

Describe the two parts of the SEC registration statement.

Question 62

Name five securities offerings exempt from registration with the SEC.

Question 63

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

Question 64

What is the purpose of Regulation S-K? Briefly describe requirements of Regulation S-K.

Question 65

What is required by the Trust Indenture Act of 1939?

Question 66

What information is required in proxy statements?

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

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

Question 72

Name the two broad categories of filings with the SEC.

Question 73

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

Question 74

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

Question 75

What Federal agency has Congressional authority to amend, modify, repeal, or reject auditing standards?

Question 76

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