SEC Reporting Flashcards by Frank Smith

What are some of the less obvious purposes of the SEC?

Regulation of public utility holding companies

Bankruptcy protection

Overseeing proxy solicitations

Overseeing tender offers

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What does the SEC do regarding proxy solicitations?

Information to solicit stockholder votes must be filed with the SEC and approved

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What does the SEC do regarding tender offers?

Anyone wishing to buy >5% of a company’s stock (by direct purchase or tender offer) must disclose certain information

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What is the Securities Act of 1933?

“Truth in securities” law

Issuers of securities in interstate commerce must file with the SEC – depended on “interstate commerce” clause of Constitution

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What is the Securities Exchange Act of 1934?

Companies listed on exchanges have to file various reports with the SEC (also various companies who trade on OTC markets)

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What is the Public Utility Holding Company Act of 1935?

SEC regulates gas and electric public-utility holding companies

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What is the Trust Indenture Act of 1939?

Requires debt issuers to include certain protections in trust indentures

Also requires trustees for the debt issuers to avoid conflicts of interest

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What is the Investment Company Act of 1940?

Makes regulatory framework for investment companies

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What is the Investment Advisers Act of 1940?

Requires all investment advisers to register with SEC and regulates their activity

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What is Chapter 11 of the Bankruptcy Code?

Permits SEC to participate in cases where bankrupt companies “reorganize” to get back in business

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Who composes the SEC?

5 people, each appointed by the President (with Senate’s consent) for 5-year terms, one term ending each year

No more than 3 members can belong to same political party

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What are the seven offices of the SEC?

Office of General Counsel
Office of Compliance, Inspections, and Examinations
Office of International Affairs
Office of Investor Education and Advocacy
Office of Economic Analysis
Office of Chief Accountant
Division of Corporation Finance

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What is done by the Office of General Counsel?

It acts as the SEC’s “lawyer” before federal courts and provides legal advice

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What is done by the Office of Economic Analysis?

Helps the SEC to estimate the economic benefits and costs of its rules

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What is done by the Division of Corporation Finance?

It reviews documents filed by public companies

Provides interpretations of 1933, 1934, and 1939 Acts and recommends rules for them

Monitors the FASB (with help of Office of Chief Accountant)

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What is pre-clearing?

If a company is unsure of how to deal with an accounting question, they can “pre-clear” the question by taking it to the SEC in advance

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What is Regulation S-X?

Main accounting regulation of the SEC

Governs annual reports, requires stockholders’ report to have three-year comparative financials

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What is Regulation S-K?

Details what public companies have to file with the SEC

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What are Financial Reporting Releases (FRRs)?

Name is self-evident

SEC began issuing them in 1982, placed in Codification of Financial Reporting Policies (FRP), which is updated with new FRRs

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What are Accounting and Auditing Enforcement Releases (AAERs)?

They list enforcement actions involving accountants

AAER 1 has a topical index for enforcement topics and a listing of related ASRs (Accounting Series Releases)

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What are Staff Accounting Bulletins (SABs)?

Distribute interpretations from the Division of Corporation Finance and the Office of Chief Accountant

Not official rules or interpretations of the SEC

What is Regulation S-B?

Gives disclosure requirements for “small business issuer” filings

How does a business qualify as a small business issuer?

Revenues under $25,000,000

U.S. or Canadian issuer

Not an investment company or asset-backed issuer

If a subsidiary, the parent is also a small business issuer

What are the three categories of companies required to file with the SEC?

(1) companies whose stock is traded on a national stock exchange
(2) companies with assets over $10 million and 500 or more shareholders
(3) companies that have sold shares to the public

That is, the SEC regulates public companies and big companies

What are the relevant documents that the SEC may require to be disclosed?

- registration statements for new securities - proxy materials to shareholders before an annual meeting - annual reports to shareholders - annual and quarterly filings (10-K and 10-Q) - tender offer documents - filings for mergers and acquisitions

What are the four general things required in SEC registration forms?

- description of company - description of security - info on company management - financial statements certified by independent accountants

What offerings do not need to be registered?

- private offerings to a limited # of investors - small offerings - intrastate offerings - municipal, state, and federal securities Intention is to help capital growth for smaller companies

With whom does the responsibility lie for accuracy and completeness in registration statements?

Management

What does the SEC do if important information is lacking in a registration statement?

First requires correction with an amendment Then uses "stop-order" or "refusal-order" powers to hinder registration statements and prevent (further) securities sales

What is a no-action letter?

If an entity asks for guidance on some legal issue from the SEC staff, the staff can write a letter saying that it would recommend the SEC to take no action if the entity does the proposed action -- hence "no action letter"

What is the safe harbor rule?

Protects companies from incorrect projections of information as long as it was done in good faith

Is the annual report the same as the annual report on Form 10-K?

No The first is the annual report to shareholders, a general "state of the company" report, while the second is an overview of the company's financial condition on Form 10-K

What does Form 10-K include?

More detailed info than the annual report Must be provided if shareholders request a copy

What is included in Part I of Form 10-K?

Describes business, properties, litigation, security ownership of owners

What is included in Part II of Form 10-K?

Market info for common stock, MD&A, and financial statements

What is included in Part III of Form 10-K?

Covers directors, officers, and management

What is included in Part IV of Form 10-K?

Shows exhibits, schedules, and Form 8-K reports (emergency filings)

When must companies file Form 10-K?

Large accelerated filers -- within 60 days after fiscal year-end Accelerated filers -- within 75 days after fiscal year-end Nonaccelerated filers -- within 90 days after fiscal year-end

How do you determine what kind of filer a company is for Form 10-K?

Large accelerated filers -- have avg. annual cash flow of $700 million or more Accelerated filers -- have avg. annual cash flow of $75 million or more

What is Form 10-Q?

Quarterly report -- must be provided for first three quarters Includes unaudited financial statements

When must companies file Form 10-Q?

Large accelerated filers and accelerated filers -- within 40 days of quarter-end Nonaccelerated filers -- within 45 days

What is Form 8-K?

Announces major events for shareholders (e.g. change in control of company) Companies have four business days to file 8-K following event

What are triggering events for Form 8-K?

Bankruptcy, acquisition or disposition of assets, asset impairment, changes in company's accountant, departure of director(s) or officer(s), etc.

What is Form 3?

Filed by corporate insiders -- officers, directors, and beneficial owners (>10% stock owners) to state their beneficial ownership when first obtained

What is Form 4?

For a change in beneficial ownership Must be filed within 2 business days

What is Form 5?

Filed by insiders to summarize insider transactions during the year -- can report things which should have been in earlier Form 4s, or things which were allowed to be deferred Filed annually, within 45 days of year-end

What is Form D?

Companies raising less than $1 million do not need to register with the SEC, but do need to provide info about their business and their stock in Form D Part of Regulation D

What is the Basic Information Package (BIP)?

Financial info in SEC filings -- usually in 10-K and annual report

What is the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system?

Allows for electronic filings

What does Regulation S-T include?

Rules for electronic filings, which must be done rather than hard paper (except for dire circumstances) Also contains a safe harbor against errors from electronic filing (Rule 103)