Test bank advanced financial accounting ch 14 SEC reporting

Chapter 14 - SEC Reporting

Chapter 14
SEC Reporting
Multiple Choice Questions

1. The Securities and Exchange Commission is responsible for:

A. Option A
B. Option B
C. Option C
D. Option D

2. Which regulation created the Securities and Exchange Commission?
A. Securities Act of 1933
B. Securities Exchange Act of 1934
C. Investment Company Act of 1940
D. Garn-St. Germain Depository Institutions Act of 1982

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

7. Regulation S-X and Regulation S-K:
A. govern the preparation of financial statements and associated disclosures.
B. govern the registration requirements for private placements.
C. outline responsibilities for audit committees of publicly held companies.
D. prohibit artificial pyramids of capital in public utilities.

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.

10. The preparation of which of the following items is covered by Regulation S-K?
A. Descriptions of business
B. Pro forma disclosures
C. Schedules
D. Reports of accountants

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

15. Regulation D of the SEC presents important exemptions from full registration
requirements for:
A. private placements.
B. issuances of securities by savings and loan associations.
C. issuances of securities by common carriers regulated by the Interstate Commerce
Commission.
D. foreign companies.

16. Which of the following forms is the most comprehensive registration statement?
A. Form S-1
B. Form F-2
C. Form S-3
D. Form S-2

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

18. The purpose of a "tombstone ad" is:
A. to inform investors an upcoming offering has been canceled.

B. to inform investors of an upcoming offering.
C. to inform investors an upcoming offering will be delayed for 30 days.
D. to inform investors securities will be offered for sale after the company has responded to
the SEC's comment letter.

19. Which of the following best describes a "red herring" prospectus?
A. A shortened version of registration Form S-1 available to those companies that already
have publicly traded securities.
B. A prospectus containing material irregularities and deficiencies.
C. Preliminary information provided to investors about an upcoming issue, and issued
between the time a registration statement is presented to the SEC and its effective date.
D. Disclosure in the business press, outlined in red, informing investors of an upcoming
offering.

20. Which of the following observations is true of the shelf registration rule?
A. It is an option available to all listed companies.
B. Shelf registration is limited to 25 percent of the company's currently outstanding stock.
C. It allows private placements of an unlimited amount of securities.
D. It allows large companies to select the optimal time to sell their stock.

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

23. Which of the following statements concerning Form 10-Q is NOT true?
A. It is filed for all four quarters.
B. It is the quarterly report to the SEC.
C. It contains an update on significant matters occurring since the last quarter.
D. It includes comparative financial statements prepared in accordance with APB 28.

24. Information concerning the unexpected resignation of one or more of the registrant's
directors would be disclosed on which of the following forms?
I. Form 8-Q
II. Form 8-K
A. I
B. II
C. Both I and II
D. Neither I nor II

25. Proxy statements are:
A. filed by an entity that acquires a beneficial ownership of more than 5 percent in a
company.
B. interim financial statements need not be audited.

C. materials submitted to shareholders for votes on corporate matters.
D. used to disclose unscheduled material events.

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Chapter 14 - SEC Reporting

26. Schedule 13D is filed
A. by entities that acquire a beneficial ownership of more than 5 percent of a class of
registered equity securities.
B. to broadly report material information that is being provided to securities analysts, selected
institutional investors, or others.
C. to disclose material items related to asset-backed securities such as a bond issue.
D. by management to report the existence and effectiveness of the company's internal control
over financial 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

29. According to the provisions of the Sarbanes-Oxley Act,
A. accounting firms can provide both audit and non-audit services to the same company.
B. the auditor should report directly to, and have its work overseen by, the company's
management.
C. audit committees should be composed of non-management members of a company's board
of directors.
D. both the lead audit partner and the audit review partner for publicly held companies should
be rotated at least every two years.

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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

33. The history of securities regulation can be traced to:
A. the stock market crash of 1929.
B. medieval times.
C. 18th century creation of the New York Stock Exchange.
D. 18th century English Parliament's passage of the Bubbles Acts.

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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 threeyear 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

35. Pro forma disclosures are:
A. used to disclose unscheduled material events.
B. interim financial statements need not be audited.
C. materials submitted to shareholders for votes on corporate matters.
D. "what-if " presentations often taking the form of summarized financial statements.

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

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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.
(a) Customary Review
(b) Comment Letter
(c) "Red Herring" Prospectus
(d) "Tombstone Ad"
(e) Financial Reporting Releases
(f) Staff Accounting Bulletins
(g) Accounting and Auditing Enforcement Releases
(h) Management's Discussion and Analysis

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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

41. "Red Herring" Prospectus

42. "Tombstone ad"

43. Form 10-K

44. Form 10-Q

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Chapter 14 - SEC Reporting

45. Form 8-K

46. Financial Reporting Releases

47. Staff Accounting Bulletins

48. Accounting and Auditing Enforcement Releases

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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.

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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?

Chapter 14 SEC Reporting Answer Key

Multiple Choice Questions

1. The Securities and Exchange Commission is responsible for:

A. Option A
B. Option B
C. Option C
D. Option D

AACSB: Reflective Thinking
AICPA: Decision Making

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Chapter 14 - SEC Reporting

2. Which regulation created the Securities and Exchange Commission?
A. Securities Act of 1933
B. Securities Exchange Act of 1934
C. Investment Company Act of 1940
D. Garn-St. Germain Depository Institutions Act of 1982

AACSB: Reflective Thinking
AICPA: Decision Making

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

AACSB: Reflective Thinking
AICPA: Decision Making

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

AACSB: Reflective Thinking
AICPA: Decision Making

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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

AACSB: Reflective Thinking
AICPA: Decision Making

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

AACSB: Reflective Thinking
AICPA: Decision Making

7. Regulation S-X and Regulation S-K:
A. govern the preparation of financial statements and associated disclosures.
B. govern the registration requirements for private placements.
C. outline responsibilities for audit committees of publicly held companies.
D. prohibit artificial pyramids of capital in public utilities.

AACSB: Reflective Thinking
AICPA: Decision Making

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

AACSB: Reflective Thinking
AICPA: Decision Making

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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.

AACSB: Reflective Thinking
AICPA: Reporting

10. The preparation of which of the following items is covered by Regulation S-K?
A. Descriptions of business
B. Pro forma disclosures
C. Schedules
D. Reports of accountants

AACSB: Reflective Thinking

AICPA: Reporting

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

AACSB: Reflective Thinking
AICPA: Decision Making

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

AACSB: Reflective Thinking
AICPA: Decision Making

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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

AACSB: Reflective Thinking
AICPA: Decision Making

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

AACSB: Reflective Thinking
AICPA: Decision Making

15. Regulation D of the SEC presents important exemptions from full registration
requirements for:
A. private placements.
B. issuances of securities by savings and loan associations.
C. issuances of securities by common carriers regulated by the Interstate Commerce
Commission.

D. foreign companies.

AACSB: Reflective Thinking
AICPA: Reporting

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Chapter 14 - SEC Reporting

16. Which of the following forms is the most comprehensive registration statement?
A. Form S-1
B. Form F-2
C. Form S-3
D. Form S-2

AACSB: Reflective Thinking
AICPA: 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

AACSB: Reflective Thinking
AICPA: Decision Making

18. The purpose of a "tombstone ad" is:

A. to inform investors an upcoming offering has been canceled.
B. to inform investors of an upcoming offering.
C. to inform investors an upcoming offering will be delayed for 30 days.
D. to inform investors securities will be offered for sale after the company has responded to
the SEC's comment letter.

AACSB: Reflective Thinking
AICPA: Decision Making

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Chapter 14 - SEC Reporting

19. Which of the following best describes a "red herring" prospectus?
A. A shortened version of registration Form S-1 available to those companies that already
have publicly traded securities.
B. A prospectus containing material irregularities and deficiencies.
C. Preliminary information provided to investors about an upcoming issue, and issued
between the time a registration statement is presented to the SEC and its effective date.
D. Disclosure in the business press, outlined in red, informing investors of an upcoming
offering.

AACSB: Reflective Thinking
AICPA: Decision Making

20. Which of the following observations is true of the shelf registration rule?
A. It is an option available to all listed companies.
B. Shelf registration is limited to 25 percent of the company's currently outstanding stock.
C. It allows private placements of an unlimited amount of securities.

D. It allows large companies to select the optimal time to sell their stock.

AACSB: Reflective Thinking
AICPA: Decision Making

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.

AACSB: Reflective Thinking
AICPA: Reporting

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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

AACSB: Reflective Thinking

AICPA: Reporting

23. Which of the following statements concerning Form 10-Q is NOT true?
A. It is filed for all four quarters.
B. It is the quarterly report to the SEC.
C. It contains an update on significant matters occurring since the last quarter.
D. It includes comparative financial statements prepared in accordance with APB 28.

AACSB: Reflective Thinking
AICPA: Reporting

24. Information concerning the unexpected resignation of one or more of the registrant's
directors would be disclosed on which of the following forms?
I. Form 8-Q
II. Form 8-K
A. I
B. II
C. Both I and II
D. Neither I nor II

AACSB: Reflective Thinking
AICPA: Reporting

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Chapter 14 - SEC Reporting

25. Proxy statements are:
A. filed by an entity that acquires a beneficial ownership of more than 5 percent in a

company.
B. interim financial statements need not be audited.
C. materials submitted to shareholders for votes on corporate matters.
D. used to disclose unscheduled material events.

AACSB: Reflective Thinking
AICPA: Reporting

26. Schedule 13D is filed
A. by entities that acquire a beneficial ownership of more than 5 percent of a class of
registered equity securities.
B. to broadly report material information that is being provided to securities analysts, selected
institutional investors, or others.
C. to disclose material items related to asset-backed securities such as a bond issue.
D. by management to report the existence and effectiveness of the company's internal control
over financial reporting.

AACSB: Reflective Thinking
AICPA: 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

AACSB: Reflective Thinking
AICPA: Reporting

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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

AACSB: Reflective Thinking
AICPA: Reporting

29. According to the provisions of the Sarbanes-Oxley Act,
A. accounting firms can provide both audit and non-audit services to the same company.
B. the auditor should report directly to, and have its work overseen by, the company's
management.
C. audit committees should be composed of non-management members of a company's board
of directors.
D. both the lead audit partner and the audit review partner for publicly held companies should
be rotated at least every two years.

AACSB: Reflective Thinking
AICPA: 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

AACSB: Reflective Thinking
AICPA: Decision Making

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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

AACSB: Reflective Thinking
AICPA: Decision Making

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

AACSB: Reflective Thinking
AICPA: Reporting

33. The history of securities regulation can be traced to:
A. the stock market crash of 1929.
B. medieval times.
C. 18th century creation of the New York Stock Exchange.
D. 18th century English Parliament's passage of the Bubbles Acts.

AACSB: Reflective Thinking
AICPA: Decision Making

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