Kế toán, kiểm toán - Chapter twelve: Financial reporting and the securities and exchange commission

Chapter TwelveFinancial Reporting and the Securities and Exchange CommissionMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.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)LO 112-*Federal Securities LawsThe 1934 Act Established the SECSpurred by the Great Depression following the 1929 Stock Market Crash, Congress enacted:LO 212-*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-*Full and Fair DisclosureIn 2001 and 2002, corporate scandals shook the confidence of investors in the reliability of financial statement informationCauses included: Greed of the corporate executives Failure of corporate governance Audit failures Unreasonable market expectations Overburdened SEC12-*The SEC’s Impact on Financial Reporting In addition to audited financial statements, Rule 14c-3 of the 1934 Act requires the following to be included in proxy statements sent to shareholders:5-year summary of operations.Description of the business’ activities.3-year summary of industry segments.Listing of company directors and executive officers.Market price of the common stock for each quarter of the last 2 years.Restrictions on the company’s ability to pay dividends.MD&A12-*Corporate Scandals Led to Sarbanes-Oxley in 2002Enron:Ken Lay received $152.7 million in the yearhis firm collapsed,zeroing out pensionsWorldCom:Improperly Added$9 Billion of IncomeAdelphia Communications’ founder “looted” the company ofover $2 BillionLO312-*Creation of Public Company Accounting Oversight BoardSarbanes-Oxley Act of 2002 Section 101Under 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.12-*Creation of Public Company Accounting Oversight BoardSarbanes-Oxley Act of 2002 Section 101 Five membersAllows only 2 of the 5 to be CPAs, past or present.Remaining 3 must NOT be accountants.The Board is funded through mandatory fees levied on all publicly traded companies.Accounting firms, domestic and foreign, must register with the Board and pay fees.Registered firms are subject to periodic inspections by the PCAOB.12-*Sarbanes-Oxley Act of 2002 Auditor IndependenceTo ensure future independence of audit firms, some previously common concurrent services are now prohibited.Bookkeeping services.AIS design and implementation.Appraisal or valuation services.Internal audit outsourcing.Management functions/Human Resource Management.Investment advising.Legal services or expert services.12-*SEC’s 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:LO 412-*The SEC allows the FASB to set GAAP.Authority only extends to publicly traded companies.SEC’s Authority Over GAAP12-*Filings with the SECLegislation and regulations require registrants to make numerous filings including these two basic categories of filings LO 512-*Common SEC Registration Statement Forms12-*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.LO 612-*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-*