File: Chapter 12 – Financial Reporting and the Securities and Exchange Commission
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
may 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) The Securities Act.
B) The Securities Exchange Act.
C) The Trust Indenture Act.
D) The Investment Company Act.
E) The 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 wraparound filing:
A) May be used by large companies to sell securities over a period of two years without re-filing with the
SEC.
B) Is a simplified registration procedure for securities to be issued by small companies.
C) Allows a company to simplify its periodic filing by attaching its annual report to Form 10-K.
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.
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[QUESTION]
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.
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[QUESTION]
13. Which of the following securities offerings is not exempt from registration prior to their sale?
A) Securities issued to a company’s board of directors.
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 two 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.
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Page 12-6
[QUESTION]
16. The SEC’s operating costs are supported through
A) Tax revenues of the federal government.
B) Registration fees from issuers offering securities to the public.
C) Fees paid by stock exchanges.
D) Fees paid by stockbrokers.
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 days.
B) 60 days.
C) 10 days.
D) 90 days.
E) 7 days.
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).
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[QUESTION]
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. When would a letter of comments 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.
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Page 12-8
[QUESTION]
22. Which one of the following prohibits fraudulent and unfair behavior such as sales practice abuses and
insider trading?
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) Insider Trading Sanctions Act of 1984.
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.
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[QUESTION]
25. Which statement is false regarding the registration of public accounting firms with the PCAOB?
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 non-
audit 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 a 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.
1. Issuing Financial Reporting Releases (FRRs).
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.
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Education.
Page 12-10
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
28. Which of the following is not a security as defined by the SEC?
A) Accounts receivable.
B) Transferable share.
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 necessary, 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) A listing of directors and executive officers.
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.
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Page 12-12
Learning Objective: 12-06
Topic: Issuer registration―Procedures
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA FN Measurement
[QUESTION]
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 large companies to register securities with the SEC and then sell them over a
period of two years without registering again within that period.
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 no more than 35 sophisticated knowledgeable
investors, with no general solicitation allowed.
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 no more than 50 accredited investors, with no general solicitation allowed.
36. What is a sophisticated investor?
A) An investor with a net worth equal to or exceeding $1,000,000.
B) An investor holding an active CPA license.
C) An investor with a portfolio of 50 or more securities.
D) An investor having knowledge and experience in financial matters.
E) An investor currently serving as an audit committee member.