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Answers to Problems
1. D – A is false because intrastate offerings are typically exempt from
registration; B is false because the 1934 Securities Act regulates post-issuance
trading of securities; and C is false because blue sky legislation is state law.
5. C – Not all auditing firms are required to register with the PCAOB, only those
firms that prepare, issue, or participate in the preparation of an audit report for an
issuer. Issuers do incur additional fees as a result of SOX.
6. C – The SEC appoints the five (5) PCAOB members.
11.C – Recall that the letter of comments / deficiency letter relate to the SEC’s
response subsequent to an issuer’s filing of a Registration Statement.
15. C – Smaller public offerings of less than $5 million made within a 12-month
period may be exempt from registration, however, $5.9 million exceeds this
threshold.
16. B – A prospectus is filed only in connection with the initial offering of a
security. Therefore it is not ‘regularly’ filed with the SEC, unless the issuer is
‘regularly’ issuing new securities.
19.(25 Minutes) (Series of questions about securities regulations).
a. Blue Sky Laws—Individual state laws that regulate the issuance of
securities when the transactions are limited to the residents of the state in
which the issuing company is organized and principally doing business.
Such securities are exempted from regulation by federal securities laws.
e. Prospectus— The prospectus is the first part of a registration statement that
contains financial statements for the company and indicates the use to be
made of the money received from the sale of the securities, the capital
structure of the company, and a description of the business and its
properties. Every potential buyer of the new security must be furnished with
a prospectus.
20.(25 Minutes) (Discussion of the Securities Act of 1933 and the Securities
Exchange Act of 1934)
The Securities Act of 1933 and the Securities Exchange Act of 1934 were
passed to help rebuild confidence in the capital market system of the United
States. Economic development in this country is based on generating large
amounts of monetary capital through the issuance of stocks and bonds. To
entice sufficient investment, public trust in the integrity of the system must be
maintained. Following the stock market crash of 1929, public confidence
reached a low level. Federal securities laws were subsequently passed in
hopes of achieving several objectives designed to restore trust in the capital
markets. Several aspects of these laws should be noted:
To help achieve these goals, the Securities and Exchange Commission (SEC)
was created to monitor the capital market system. For example, registration
statements had to be filed with the SEC before new stocks or bonds could be
issued to the public. These statements were reviewed and could not become
21.(20 Minutes) (Description of the registration process)
In filing a registration statement for a new security, a company must first
select the appropriate SEC Registration form. For example, Form S-1 is used
by new registrants while Form S-3 is filed by large companies that already
have a significant following in the securities markets. Appropriate disclosures
and other required data are then prepared in accordance with Regulation S-K
22.(15 Minutes) (Discussion of the SEC's influence on generally accepted
accounting principles)
The SEC has far-ranging authority over the accounting principles in this
country. Through its ability to modify Regulation S-X, the SEC holds the power
to alter the financial reporting of publicly-traded companies. The SEC has
historically chosen to limit such changes to disclosure requirements with the
creation of accounting principles being left to the FASB (and its predecessors)
issuing new pronouncements.
23.(20 Minutes) (Listing of forms that are filed with the SEC on a regular periodic
basis)
Numerous forms may have to be filed regularly with the SEC by a publicly-held
company. Four of these forms (Form 10-K, Form 10-Q, Form 8-K, and proxy
statements) are frequently encountered.
— Form 10-K is an annual report filed shortly after a company's year-end.
— Form 10-Q contains condensed interim financial statements and must be
filed after the end of each quarter, other than the year-end quarter – because
the 10-K is filed after the year-end quarter.
24. (10 Minutes) (Describe the forms used to file with SEC for registration
purposes)
Some of the most commonly used forms for registering securities to be
offered to the public are as follows:
— Form S-1—for new registrants or companies that have been filing with the
SEC for less than 36 months. This form is used when no other form is
prescribed.
25.(20 Minutes) (Discussions of the Form 8-K and proxy statements)
The Form 8-K is designed to ensure the immediate disclosure by a company of
any unique or significant event. Thus, any interested parties are able to obtain
needed information without having to wait for a quarterly or annual statement.
assets, change in independent auditors, and bankruptcy.
A proxy statement is the package of information that must accompany the
request made to a stockholder for the right to cast that owner's votes at a
stockholders' meeting. Since obtaining a significant number of proxies would
26.(20 Minutes) (Describe responsibilities of the Public Company Accounting
Oversight Board)
The Sarbanes-Oxley Act of 2002 is a wide-ranging piece of legislation that
covers a large number of different areas of corporate financial reporting.
Much of this Act deals with the establishment of the Public Company
Accounting Oversight Board (PCAOB). The PCAOB is created / addressed in
Title I of the Act.
The PCAOB must periodically inspect the work of each of the registered
accounting firms. The depth and breadth of this inspection will ultimately
encompass both audit documentation and compliance with quality control
standards. Large firms may undergo annual inspection whereas smaller firms
will only be inspected every three years.
27.(30 Minutes) (Discussion of financial reporting and the SEC)
a. Staff Accounting Bulletins—According to the website (www.sec.gov) of the
Securities and Exchange Commission, “Staff Accounting Bulletins reflect
b. Wraparound filing—the process of using the annual report furnished to
shareholders to fulfill many of the requirements of the Form 10-K to be filed
d. Division of Corporation Finance—a division of the SEC that establishes
standards of reporting and disclosure. This division also reviews the
registration statements that are filed with the SEC and issues any needed
letters of comments.
f. Management's discussion and analysis—an inclusion in the Form 10-K that
serves as the management's description of its priorities, accomplishments,
28.(10 Minutes) (Listing of organizations that are exempt from the registration
requirements of the SEC)
— Governments
— Banks
— Savings and loan associations
— Companies that restrict the exchange of their securities to within one state
— Companies that restrict an issuance to its own stockholders where no
commission is paid to solicit the exchange
Develop Your Skills
RESEARCH CASE 1 (45 Minutes)
The purpose of this question is to allow the student the opportunity of working
with the actual regulations posted on the SEC web site. The URL given in the
problem will take the student to the entire set of rules set out under Regulation A
For this assignment, the student should probably focus on the heading “Scope of
Exemption.” This reference provides several pages of information on the
exemption from filing a registration statement that is provided to companies by
Regulation A. There are a number of issues that the student might want to
address in connection with this question:
— Where does the company have to be legally incorporated? (The U.S., Canada,
or one of the territories or possessions of the U.S.)
If Domer Corporation is a development stage company, the exempt provisions of
Regulation A may not apply. Specifically, Reg. Sec. 230.251 (a) (3) provides that
the exemption is not available to “a development stage company that either has
RESEARCH CASE 2 (30 Minutes)
The SEC v. Calvo case involves a situation similar to the fact pattern in this
research case. The student is directed to this case because of the many
The 1933 Securities Act defines ‘security’ very broadly to include investment
In the instant example, the Tasch Corporation will ‘manage’ the customer’s
enterprise, the customers are investing money, and the customers are expecting
ANALYSIS CASE 1 (45 Minutes)
This assignment requires the student to utilize the EDGAR database to find
recent company filings by any publicly-held company. The results that a student
gets will depend on the company name that is entered and the time frame for
1. A number of 8-K forms can be found for most companies. Companies now
tend to err on the side of over-disclosure with regard to 8-K filings, many of which
2. A further investigation of the Dell filings leads to a Form 10-K issued on March
12, 2013 (or later depending on when the student utilizes the database), that
3. Finally, a definitive proxy statement can be located for Dell (DEFA 14A), as of
April 1, 2013.
Communication Case 1
Here, the student is asked to investigate and review that actual statutory
components of the Sarbanes-Oxley Act of 2002. This Act encompasses
approximately seventy (70) pages and contains an extensive list of requirements
for auditors covered by the Statute.
The first issue to consider for the Wojtysiak firm is whether it is presently
The student will most likely wish to consider and incorporate the following
provisions of the Act.
The student should be able to write an extensive report on the impact of
Sarbanes-Oxley on the Wojtysiak firm, based on these and other provisions of the
Act.
