ch 12

Student: ___________________________________________________________________________

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
. are allowed to 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. Securities Act.
B. Securities Exchange Act.
C. Trust Indenture Act.
D. Investment Company Act.
E. Public Utility Holding Company Act.

4.

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.

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 wrap-around filing:
A. may be used by large companies to sell securities over a period of two years without refiling with the
SEC.
B. is a simplified registration procedure for securities to be issued by small companies.
C. allows a company to simplify its form 10-K by referring to information in its annual report.
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. offerings of more than $5 million.
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. 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 eight 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 charged to issuers offering securities to the public.
C. fees paid by stock exchanges.
D. fees paid by stock brokers.
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.
B. 60.
C. 10.
D. 90.
E. 7.
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. A letter of comments would 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 regulates the subsequent trading of securities through brokers and exchanges?
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. The Sarbanes-Oxley Act of 2002.
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 under the
Sarbanes-Oxley Act?
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 nonaudit 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 the 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?
1. Issuing Financial Reporting Releases (FRRs).
2. Requiring additional disclosures in notes to financial statements.
3. Declaring a moratorium on the use of specified accounting practices.
4. 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. Notes receivable.
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 mandatory, 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. financial statements reviewed by an independent CPA.
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.
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 a company to register securities and then sell them over a period of two years
without reregistering.
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 a small group of sophisticated knowledgeable
. investors, without any general solicitation.
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 35 or fewer accredited investors.
36. What is the minimum net worth of those who are considered accredited investors?
A. $200,000.
B. $400,000.
C. $500,000.
D. $1,000,000.
E. $2,000,000.
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-1.
B. S-4.
C. S-11.
D. S-8.
E. S-3.
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 one of the following forms is used in connection with registration of securities of real estate
companies?
A. S-8.
B. S-1.
C. S-4.
D. S-3.
E. S-11.
43. Which one 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 nonaffiliates?
A. S-8.
B. S-11.
C. S-4.
D. S-1
E. S-3.
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. sign certification of 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. ___ 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 external auditor.
___ 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.
For each of the following situations, select the best answer concerning information forms filed with the
SEC:
(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.

48. What is shelf registration?

49. What is a private placement of securities?

50. What are accredited investors?

51. What is a wrap-around 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. When is the SEC's Registration Form S-4 used?

61. When must Form 8-K be filed with the SEC?

62. Briefly describe Regulation S-K. What is its purpose?

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

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 responsibility to create auditing and accounting standards?

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

73. What is the 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.

ch 12 Key
1. C
2. B
3. E
4. B
5. C
6. D
7. E
8. C
9. B
10. B
11. E
12. C
13. A
14. A
15. C
16. B
17. C
18. D
19. E
20. A
21. A
22. B
23. D
24. C
25. B
26. E
27. E
28. A
29. B
30. C
31. D
32. C
33. A
34. B
35. B
36. D

37. E
38. C
39. C
40. A
41. A
42. E
43. D
44. A
45. D
46. B
47. (1) C; (2) A; (3) C; (4) B; (5) D; (6) C; (7) A; (8) B; (9) D; (10) C
48. Shelf registration is a procedure that allows a company to register securities and then sell them over a period of two years without
reregistering.
49. A private placement of securities is a sale of securities to a small group of sophisticated investors, knowledgeable and experienced in financial
matters, without any general solicitation.
50. Banks, insurance companies, and individuals with net worth in excess of $1 million are accredited investors.
51. A wrap-around filing is a method of filing Form 10-K with the SEC. The company files its annual report and uses incorporation by reference
to meet many of the requirements of the SEC.
52. Part I is a prospectus that includes audited financial statements, the intended use of the securities proceeds, a description of the risks associated
with the securities, and a description of the business and properties owned by the registrant.
53. Part II includes information that discloses issuance expenses, marketing arrangements, and other data that is only used by SEC staff in the
registration process.
54. Blue sky legislation represents state legislation that is intended to prevent securities fraud and to offer some protection to investors. These
are for securities exempt from SEC registration because they are sold to residents of the state in which the issuing company is chartered and
principally doing business.
55. The operations of the SEC are funded through registration fees charged to companies registering securities and for periodic filings.
56. The purpose of the Securities Act of 1933 was to regulate initial offerings of securities by a company or underwriter.
57. The purpose of the Securities Exchange Act of 1934 was to regulate the trading of previously issued securities through brokers and exchanges.
58. Regulation S-K establishes requirements for nonfinancial information that is filed with the SEC.
59. Rule 14c-3 is important to the accounting profession because it requires companies' financial statements that are included in annual reports to
be audited.
60. Registration Form S-4 is used to register securities that are issued in connection with business combination transactions.
61. Form 8-K must be filed with the SEC within 15 calendar days, whenever a significant event occurs. Significant events include: (1) a change in
the company's independent auditor, (2) bankruptcy, and (3) a change in the control of the company.
62. Regulation S-K establishes requirements for the nonfinancial information included in filings with the SEC. The registrant must (1) describe its
business, (2) provide data about directors and management, and (3) include a discussion by management of its current financial condition and the
results of its operations.
63. A proxy is a form signed by the shareholders giving someone else the legal authority to vote the shareholders' stock at a corporation's annual
shareholders' meeting. Managers of a corporation usually solicit proxies to vote the stock of anyone unable to attend the annual meeting. Proxy
solicitations are important because the decisions made at the annual shareholders' meeting are essential to operations of the business and there
must be a voting quorum at the meeting in order to make such decisions. Proxy solicitations encourage shareholders to authorize their vote, even
they cannot be in attendance at the meeting, so that there will be a quorum.
64. The Division of Corporation Finance has responsibility for ensuring that disclosure requirements are met by publicly held companies. Such
responsibility includes the reviewing of (1) registration statements, (2) tender offers, and (3) proxy materials, and (4) annual reports.

(4.) Regulating the operation of securities markets such as the New York Stock Exchange and the NASDAQ.
(3.) Preventing the misuse of information especially by inside parties.
(2.) Prohibiting the dissemination of materially misstated information.
(1.) Ensuring that full and fair information is disclosed to all investors before the securities of a company are allowed to be bought and sold.
65. The four interconnected goals include:

66. The Trust Indenture Act of 1939 requires the registration of trust indenture documents and supporting data in connection with the public sale of
bonds, debentures, notes, and other debt securities.
(4.) Any needed disclosures need to be included pertaining to the current period including management's discussion and analysis (MD&A) of the
financial condition of the company and the results of operations.
(3.) Two balance sheets are reported: one for the end of the most recent quarter with the second showing the company's financial position at the
end of the previous fiscal year.
(2.) A statement of cash flows is mandatory, but only for the year to date as well as for the corresponding period in the preceding year.
(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 must be
included.
67. Information in Form 10-Q includes the following:

68. (1) Greed by corporate executives; (2) a failure in the corporate governance process as practiced by many boards of directors;(3) failure
of public accounting firms to apply appropriate quality control measures to ensure independent judgments; (4) deficiencies in self-regulatory
standards of the accounting profession; (5) unreasonable market expectations; and (6) an overburdened SEC.
69. There were financial reporting abuses in the 1920s by complex utility empires. The owners of the empires minimized the need for equity
financing. The Act requires registration of interstate holding companies of public utilities.
70. (1) Five-year summary of operations; (2) description of business activities; (3) three-year summary of industry segments, export sales, and
foreign and domestic operations; (4) listing of company directors and executive officers; (5) quarterly market price of the company's common
stock; (6) dividend-paying restrictions; and (7) MD&A.
71. The SEC.
72. The audit committee is now responsible for the appointment and compensation of the external auditor. To ensure impartiality, the committee
must be independent from management. The auditor reports directly to the audit committee.
73. The regulation of audit standards and independent audit firms.
74. The investor.
75. Registration statements and periodic filings.
76. (1) Securities sold to the residents of the state in which the issuer is chartered and doing business; (2) securities issued by governments, banks,
and S&Ls; (3) securities restricted to a company's existing stockholders without commission; (4) securities issued by nonprofit organizations; (5)
small offerings of no more than $5 million within a 12-month period; (6) offerings of no more than $1 million made to any number of investors
within a 12-month period; (7) offerings of no more than $5 million made to 35 or fewer purchasers in a 12-month period; and/or (8) the private
placement of securities to no more than 35 sophisticated investors.
77. Part I (the prospectus) contains extensive information including (1) financial statements audited by an independent CPA; (2) an explanation of
the intended use of the proceeds; (3) a description of the risks associated with the securities; and (4) a description of the business and the properties
of the company. Part II is primarily for the informational needs of the SEC staff. The registrant is not required to provide this information to
prospective buyers, although the registration statement is a public document. Part II includes information such as marketing arrangements, and
securities issue expenses.

ch 12 Summary
Category
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Remember
Blooms: Understand
Difficulty: 1 Easy
Difficulty: 2 Medium
Difficulty: 3 Hard
Hoyle - Chapter 12
Learning Objective: 12-01 Understand the origin and expansive role of the Securities and Exchange Commission.
Learning Objective: 12-02 Describe the purpose(s) of various federal securities laws.
Learning Objective: 12-03 Understand the Congressional rationale for enacting the SarbanesOxley Act and the responsibilities of the Public Accounting Oversight Board.
Learning Objective: 12-04 Describe the SECs role in establishing generally accepted accounting principles (GAAP).
Learning Objective: 12-05 Define and describe an issuers filings with the Securities and Exchange Commission.
Learning Objective: 1206 Describe an issuers registration process; various forms used by the issuers; and the exemption(s) from registration.

# of Questions
77
77
77
72
5
20
52
5
77
1
23
8
4
15
27