Financial Reporting & SEC Exam Prep Ch12

Student name:__________

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the 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.

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.

3) 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.

4) Regulation S-K:

A) Controls the listing of securities by stock exchanges.
B) Established 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.

5) 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.

6) 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.

7) 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.

8) 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.

9) 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.

10) 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.

11) 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.

12) 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.

13) 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.

14) Hank Co. is preparing to issue stock. Its revenues for last year were $92,000,000, and it had $60,000,000 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.

15) 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.

16) 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.

17) 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.

18) 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).

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.

20) 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.

21) 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.

22) 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.

23) 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.

24) 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.

25) 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.

26) 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.

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

28) 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.

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.

30) 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.

31) 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.

32) 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.

33) 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 owned by the registrant.

34) 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.

35) 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.

36) 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.

37) 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.

38) 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.

39) 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.

40) 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.

41) 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.

42) 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.

43) 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.

44) 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.

45) 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.

46) 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.

47) What is EDGAR?

A) An electronic filing system developed by the SEC.
B) The principal system that determines whether brokers, dealers, and investment companies and advisors comply with federal securities laws.
C) The office that supports the SEC and its staff in all aspects of information technology.
D) An electronic compliance system that documents SEC violations.
E) The SEC division that oversees the securities market in the U.S.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
48) 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 requiredA unique or significant happening.Annual information required by Regulation S-X.Changes in control of the registrant.Interim financial statements.Fourth quarter income statement.Bankruptcy.Annual information required by Regulation S-K.Income statement for the current quarter, year-to-date, and comparative periods in the previous year.Changes in bookkeeping staff.Changes in the registrant's independent auditor.

49) What is shelf registration?

50) What is a private placement of securities?

51) What is a wraparound filing?

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

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

54) What is blue sky legislation?

55) How are the operations of the SEC funded?

56) What was the purpose of the Securities Act of 1933?

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

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

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

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

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

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

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

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

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

66) What is required by the Trust Indenture Act of 1939?

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

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

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

70) What information is required in proxy statements?

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

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

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

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

75) Name the two broad categories of filings with the SEC.

76) Name five securities offerings exempt from registration with the SEC.

77) Describe the two parts of the SEC registration statement.

78) Describe how the Public Company Accounting Oversight Board interacts with the Auditing Standards Board to promulgate audit and attestation standards.

79) What is a letter of comments?

80) What is meant by the term incorporation by reference?

81) What are some ways by which the Sarbanes-Oxley Act attempts to ensure auditor independence from an audit client?