Advanced Accounting by Hoyle et al, 6th Edition

Learning Objective 12-1Understand the origin andexpansive role of the securities and Exchange Commission.12-2Understand the origin and expansive role of the securities and Exchange Commission.Learning Objective 12-2Describe the purpose(s) ofvarious federal securities laws.12-4Describe the purpose(s) of various federal securities laws.Major Influence on the Development of US GAAPIndependent Agency of theFederal GovernmentEstablished by the Securities Exchange Act of 1934.Mandate is to ensure that complete and reliable information is available to investorsDirect authorityApplies to Publicly HeldCompaniesSECSecurities and Exchange Commission (SEC)12-3SEC:Independent Agency of the Federal Government Established by the Securities Exchange Act of 1934.Direct authority Applies to Publicly Held CompaniesMandate is to ensure that complete and reliable information is available to investorsMajor Influence on the Development of US GAAP

Securities Exchange Act of 1934Securities Act of 1933Federal Securities LawsRegulates the initial offering of securities by a company or underwriter.Regulates the subsequent trading of securities through brokers and exchanges.The 1934 Act Established the SECSpurred by the Great Depression following the 1929 Stock Market Crash, Congress enacted:12-5Spurred by the Great Depression following the 1929 Stock Market Crash, Congress enacted:Securities Act of 1933 that Regulates the initial offering of securities by a company or underwriter.Securities Exchange Act of 1934 that Regulates the subsequent trading of securities through brokers and exchanges.

Full and Fair DisclosureSecurities Act of 1933 New securities must be registered prior to public sale.

Securities Exchange Act of 1934Requires continuous reporting by publicly traded companies. Prohibits fraudulent and unfair behavior.

Public Utility Holding Company Act of 1935Requires registration of interstate holding companies of public utilities.12-6Securities Act of 1933 New securities must be registered prior to public sale.Public Utility Holding Company Act of 1935Requires registration of interstate holding companies of public utilities.Securities Exchange Act of 1934 Requires continuous reporting by publicly traded companies. Prohibits fraudulent and unfair behavior.

Full and Fair DisclosureTrust Indenture Act of 1939 Requires registration of indentures related to public issue of bonds, notes, etc.Investment Company Act of 1940Requires registration of investment companies.Investment Advisers Act of 1940 and Securities Investor Protection Act of 1970Requires registration of investment advisors and requires them to follow certain standards. 12-7Trust Indenture Act of 1939 Requires registration of indentures related to public issue of bonds, notes, etc. Investment Company Act of 1940 Requires registration of investment companiesInvestment Advisers Act of 1940 and Securities Investor Protection Act of 1970 Requires registration of investment advisors and requires them to follow certain standards.

Full and Fair DisclosureForeign Corrupt Practices Act of 1977Amends Securities Exchange Act of 1934. Requires maintenance of accounting records and adequate internal accounting controls.Insider Trader Sanctions Act of 1984 & Insider Trader and Securities Fraud Enforcement Act of 1988 increase penalties against persons who profit from illegal use of inside information.12-8Foreign Corrupt Practices Act of 1977 Amends Securities Exchange Act of 1934. Requires maintenance of accounting records and adequate internal accounting controls.Insider Trader Sanctions Act of 1984 & Insider Trader and Securities Fraud Enforcement Act of 1988Increase penalties against persons who profit from illegal use of inside information.

Learning Objective 12-3Understand the Congressionalrationale for enacting theSarbanes-Oxley Act and theresponsibilities of the PublicAccounting Oversight Board.12-9Understand the Congressional rationale for enacting the Sarbanes-Oxley Act and theresponsibilities of the Public Accounting Oversight Board..Created Public Company Accounting Oversight Board, under oversight and enforcement authority of the SEC, that is charged with: Establishing auditing, quality control, and independence standards. Performing periodic inspections of registered public accounting firms.

Sarbanes-Oxley Act of 2002 (SOX) 12-10Passed in response to corporate accounting scandals (Enron, WorldCom, Adelpia Communications, etc.).

Sarbanes-Oxley Act of 2002Designed as a response to the corporate accounting scandals.The 2002 Act Established the Public Company Accounting Oversight Board

Creation of Public Company Accounting Oversight BoardUnder the oversight and enforcement authority of the SEC , the Board is charged with:Establishing auditing, quality control, and independence standards.Performing periodic inspections of registered public accounting firms.Could potentially replace the Auditing Standards Board of the AICPA.

Learning Objective 12-4Describe the SECs role inestablishing generally acceptedaccounting principles (GAAP).12-11Describe the SECs role in establishing generally accepted accounting principles (GAAP).SECs Authority over GAAPRegulation S-KEstablishes requirements for all nonfinancial information contained in SEC filings.Regulation S-XPrescribes the form and content of the financial statements, and the related notes and schedules.There are two basic documents which lay out the requirements of the SEC:12-12There are two basic documents which lay out the requirements of the SEC:Regulation S-KEstablishes requirements for all nonfinancial information contained in SEC filings.Regulation S-XPrescribes the form and content of the financial statements, and the related notes and schedules.

Congress has assigned GAAP-setting authority to the SEC.The SEC allows the FASB to set GAAP.The FASBs standards can be overridden by the SEC.Authority only extends to publicly traded companies.SECs Authority Over GAAP12-13Congress has assigned GAAP-setting authority to the SEC.The SEC allows the FASB to set GAAP.The FASBs standards can be overridden by the SEC.Authority only extends to publicly traded companies.

The SEC issues authoritative documents:Financial Reporting Releases (FRRs) Supplements to Regulations S-K and S-X

Staff Accounting Bulletins (SABs) Views on current accounting and disclosure matters.

SECs Authority Over GAAP12-14The SEC issues authoritative documents:Financial Reporting Releases (FRRs) Supplements to Regulations S-K and S-XStaff Accounting Bulletins (SABs) Views on current accounting and disclosure matters.

Learning Objective 12-5Define and describe an issuersfilings with the Securities andExchange Commission.12-15Define and describe an issuers filings with the Securities and Exchange Commission.Filings with the SECLegislation and regulations require registrants to make numerous filings including two basic categories of filings: Registration StatementsPeriodic FilingsSEC charges a registration fee based on value of securities offered, $136.40 for each $1 million. Fees in excess of costs creates a surplus that is a source of debate:Is it a revenue source for the government?Are corporations being overcharged for registration?Is the SEC sufficiently funded?12-16Legislation and regulations require registrants to make numerous filings including these two basic categories of filings Registration StatementsPeriodic Filings

Common SEC Registration Statement Forms12-17S-1 Usually used by new registrants when no other form is prescribed. S-2 Used by companies that have filed for 36 months or longer, but are not large enough to file S-3. S-3 Used by large companies with a significant following in the stock market. Has reduced disclosure requirements. S-4 Used for securities issued in connection with business combination transactions. S-8 Used for employee stock plans S-11 Used by certain real estate companies SB-1 Used by small business for issuing up to $10 million of securities. SB-2 Used by small business for securities to be sold for cash. Learning Objective 12-6Describe an issuers registrationprocess, various formsused by the issuers, and theexemption(s) from registration.12-18Describe an issuers registration process, various forms used by the issuers, and the exemption(s) from registration.Registration ProcessRegistration Statements delivered to SECReview by Div. Of Corp. FinanceA deficiency letter sent to registrantApproved after deficiencies are clearedOnce the registration is effective, the securities can be sold.Note: This process is both time-consuming and expensive.12-19Registration Statements delivered to SECReview by Div. Of Corp. FinanceA deficiency letter sent to registrantApproved after deficiencies are clearedOnce the registration is effective, the securities can be sold.Note: This process is both time-consuming and expen$ive.

eRegistration Requirements General Contents ReportPART I ProspectusAudited financial Statements.An explanation of the use of the proceeds.A description of the security risks.A description of the business.PART IIUsed by the SEC staff.Includes additional information about the company.12-20Registration Requirements General Contents ReportPART I ProspectusAudited financial Statements.An explanation of the use of the proceeds.A description of the security risks.A description of the business.PART IIUsed by the SEC staff.Includes additional information about the company.

Form 10-QQuarterly report filed within 45 days of end of quarter.Financial statement are unaudited.Form 10-KAnnual report filed within 90 days of fiscal year-end.Includes audited financial statements.Form 8-KUsed to disclose a unique or significant happening, within 15 days of the event.Periodic Filings with the SEC12-21Form 10-KAnnual report filed within 90 days of fiscal year-end. Includes audited financial statements.Form 10-QQuarterly report filed within 45 days of end of quarter.Financial statement are unaudited. Form 8-KUsed to disclose a unique or significant happening, within 15 days of the event.

Proxy StatementsProxy Statements:Allow board of directors to vote on behalf of stockholders.Must be filed with SEC 10 days prior to distribution. Needs to indicate on whose behalf the solicitation is made.Must disclose fully all matters that are to be voted on at the meeting.Is usually accompanied by an annual report.

12-22Proxy StatementsProxy Statements:Allow board of directors to vote on behalf of stockholders.Must be filed with SEC 10 days prior to distribution. Needs to indicate on whose behalf the solicitation is made.Must disclose fully all matters that are to be voted on at the meeting.Is usually accompanied by an annual report.

Sheet1FormDescriptionS-1Usually used by new registrants when no other form is prescribed.S-3Used by large companies with a significant following in the stock market. Has reduced disclosure requirements.S-4Used for securities issued in connection with business combination transactions.S-8Used for employee stock plansS-11Used by certain real estate companies

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