Advanced financial accounting by baker chapter 14

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Advanced financial accounting  by baker chapter 14

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14 SEC Reporting McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, Inc All rights reserved SEC • • The Securities and Exchange Commission (SEC) is an independent federal agency created in 1934 responsible for regulating securities markets The ability of companies to raise capital in the stock markets and the high trading volumes are indications of the SEC’s success in maintaining an effective marketplace for companies issuing securities and for investors seeking capital investments 14-2 History of Securities Regulation • • • Thirteenth century – King Edward establishes a Court of Aldermen to regulate security trades in London Eighteenth century – England’s Parliament passed several acts (the Bubble Acts), to control questionable security schemes 1790 – Creation of the New York Stock Exchange 14-3 History of Securities Regulation • • • • 1911 – States began passing what were called “blue sky laws” to regulate the offering of securities by companies which did not have a sound financial base 1920s – Era of heavy stock speculation by many individuals The Great Depression The Federal Securities Acts of 1933 and 1934 14-4 History of Securities Regulation • The Securities Act of 1933 – • Regulated the initial distribution of security issues by requiring companies to make “full and fair” disclosure of their financial affairs before their securities could be offered to the public The Securities Exchange Act of 1934 – – Required all companies whose stocks were traded on a stock exchange to periodically update their financial information Created the Securities and Exchange Commission and assigned it the responsibility of administering both the 1933 and 1934 acts 14-5 History of Securities Regulation • • The SEC has the legal responsibility to regulate trades of securities and to determine the types of financial disclosures that a publicly held company must make The SEC’s role is to ensure full and fair disclosure; it does not guarantee the investment merits of any security 14-6 EDGAR System • EDGAR (Electronic Data Gathering, Analysis, and Retrieval) – An electronic filing system developed by the SEC – Under this system, firms electronically file directly by using computers, facilitating the data transfer and making public data more quickly available 14-7 International Harmonization of Accounting Standards for Public Offerings • The International Accounting Standards Board (IASB) is working with the Financial Accounting Standards Board (FASB) to converge on a uniform set of accounting and financial reporting standards that can be used by all companies seeking financing through any of the world’s major stock markets, including those of the United States 14-8 International Harmonization of Accounting Standards for Public Offerings • In 2007, the SEC published Securities Act Release No 33-8879 – • Under this, financial statements from foreign private issuers will be accepted by the SEC without reconciliation to U.S GAAP, if they are prepared using IFRSs as issued by the IASB Securities Act Release No 33-8831 – – A Concept Release If U.S issuers are allowed to use IFRSs in their filings with the SEC, multinational U.S companies operating in several countries could use just one set of accounting and financial reporting standards for all of their global operations 14-9 Securities and Exchange Commission • Organizational structure – – – – Division of Corporation Finance – Develops and administers the disclosure requirements for the securities acts and reviews all registration statements and other issue-oriented disclosures Division of Enforcement – Directs the SEC’s enforcement actions Division of Investment Management – Regulates investment advisers and investment companies Division of Market Regulation – Regulates national securities exchanges, brokers, and dealers of securities 14-10 Issuing Securities: The Registration Process – The company prepares a “tombstone ad” in the business press to inform investors of the upcoming offering – The time period between the initial decision to offer securities and the actual sale may not exceed 120 days 14-26 Issuing Securities: The Registration Process • Shelf registration rule: – For large, established companies with other issues of stock already actively traded – These companies may file a registration statement with the SEC for a stock issue that may be “brought off the shelf ” and, with the aid of an underwriter, updated within a very short time, usually two to three days 14-27 Issuing Securities: The Registration Process • Accountants’ legal liability in the registration process – – – Under section 11 of the 1933 act, accountants are liable for any materially false or misleading information to the effective date of the registration statement The underwriters handling the sale of the securities often require a “comfort letter” from the registrant’s public accountants for the period between the filing date and the effective date This letter provides additional evidence that the public accountant has not found any adverse financial changes since the filing date 14-28 Periodic Reporting Requirements • • Companies with more than $10 million in assets and whose securities are held by more than 500 persons must file annual and other periodic reports as updates on their economic activities The three basic forms used for this updating are Form 10-K, Form 10-Q, and Form 8-K 14-29 Periodic Reporting Requirements • Form 10-K is the annual filing to the SEC – “Accelerated filers” must file their Form 10-K within 60 days after the end of the company’s fiscal year – Small businesses, and others who not meet the requirements for an accelerated filer, have until 90 days after the end of their fiscal years 14-30 Periodic Reporting Requirements • Form 10-K has four parts – Parts I, II, and III include: • • • • • The management’s discussion and analysis The audited financial statements and footnotes The report by management on the internal control structure and the assessment of the effectiveness of those controls The auditor’s opinion At least five years of condensed financial information disclosures – Part IV contains additional schedules and exhibits 14-31 Periodic Reporting Requirements • Form 10-Q is the quarterly report to the SEC – Accelerated filers must file a Form 10-Q within 35 days after the end of each of their first three quarters – Other companies must file within 45 days after the end of each of their first three quarters – No Form 10-Q is filed for the fourth quarter because that is when the Form 10-K is filed 14-32 Periodic Reporting Requirements • Form 10-Q has two parts – Part I includes comparative financial statements prepared in accordance with APB 28 – Part II is an update on significant matters occurring since the last quarter • Form 8-K is used to disclose unscheduled material events – Companies must file a Form 8-K within four business days of the occurrence of a “triggering event” 14-33 Periodic Reporting Requirements • Schedule 13D – – • Filed by those who acquire a beneficial ownership of more than percent of a class of registered equity securities and must be filed within 10 days after such an acquisition Beneficial ownership - Directly or indirectly having the power to vote the shares or investment power to sell the security Proxy statements – – Materials submitted to shareholders for votes on corporate matters In many cases, voting on these matters takes place at the annual meeting but it may also occur at a special meeting 14-34 Periodic Reporting Requirements • Accountants’ legal liability in periodic reporting – The 1934 Securities Exchange Act provides for a limited level of legal exposure from involvement in the preparation and filing of periodic reports – Civil liability is imposed for filing materially false or misleading statements – Accountants are provided with due diligence defenses 14-35 Foreign Corrupt Practices Act of 1977 • • Congress passed the Foreign Corrupt Practices Act of 1977 (FCPA) as a major amendment to the Securities Exchange Act of 1934 The FCPA has two major sections: – Part I prohibits foreign bribes – Part II requires publicly held companies to maintain an adequate system of internal control and accurate records 14-36 Sarbanes-Oxley Act of 2002 • Signed into law on July 30, 2002 – Gained impetus after the revelations about accounting and financial mismanagement at Enron, WorldCom, and others – The legislation (broadly known as SOX) has a number of major implications for accountants 14-37 Sarbanes-Oxley Act – Major Sections • • • • • • • • • • • Title I: Public Company Accounting Oversight Board Title II: Auditor Independence Title III: Corporate Responsibility Title IV: Enhanced Financial Disclosures Title V: Analyst Conflicts of Interest Title VI: Commission Resources and Authority Title VII: Studies and Reports Title VIII: Corporate and Criminal Fraud Accountability Title IX: White-Collar Crime Penalty Enhancements Title X: Sense of Congress Regarding Corporate Tax Returns Title XI: Corporate Fraud and Accountability 14-38 Disclosure Requirements • Management Discussion and Analysis – MD&A of a company’s financial condition and results of operations is part of the basic information package required in all major filings with the SEC – The items now required in the MD&A are: liquidity, capital resources, results of operations, off-balance sheet arrangements, tabular disclosure of contractual obligations 14-39 Disclosure Requirements • Pro forma disclosures – Essentially “what-if ” financial presentations often taking the form of summarized financial statements – They show the effects of major transactions that occur after the end of the fiscal period or that have occurred during the year but are not fully reflected in the company’s historical cost financial statements 14-40 ... 14- 7 International Harmonization of Accounting Standards for Public Offerings • The International Accounting Standards Board (IASB) is working with the Financial Accounting Standards Board (FASB)... set of accounting and financial reporting standards that can be used by all companies seeking financing through any of the world’s major stock markets, including those of the United States 14- 8... Staff Accounting Bulletins (SABs) allow the SEC staff to make announcements on technical issues with which it is concerned as a result of reviews of SEC filings 14- 14 The Regulatory Structure 14- 15

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Mục lục

  • SEC Reporting

  • SEC

  • History of Securities Regulation

  • Slide 4

  • Slide 5

  • Slide 6

  • EDGAR System

  • International Harmonization of Accounting Standards for Public Offerings

  • Slide 9

  • Securities and Exchange Commission

  • Slide 11

  • Slide 12

  • Slide 13

  • Slide 14

  • The Regulatory Structure

  • Slide 16

  • Issuing Securities: The Registration Process

  • Slide 18

  • Slide 19

  • Slide 20

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