Chapter 14 – SEC REPORTING
CHAPTER 14
SEC REPORTING
OVERVIEW OF CHAPTER
Chapter 14 begins with a presentation of the history of securities regulation and the
creation of the Securities and Exchange Commission (SEC). The Securities Act of 1933 requires
that any company wishing to offer securities to the public must provide full and fair disclosure of
its financial position and requires the periodic updating of the initial information provided at the
time the securities were first sold.
The chapter then discusses EDGAR, the SEC’s electronic filing systems and discusses
the current stance of efforts toward international harmonization of accounting standards for
public offerings. The organizational structure of the Commission is also briefly described.
The SEC administers several laws designed to regulate the capital markets, including the
Foreign Corrupt Practices Act of 1977, the Sarbanes–Oxley Act of 2002, the Dodd-Frank Wall
Street Reform and Consumer Protection Act, and the Jumpstart Our Business Startups (JOBS)
Act. The SEC has the legal power to establish accounting and financial disclosure principles for
companies required to file reports with the SEC. However, the SEC has continued to work with
the private sector group, currently represented by the FASB in the effort to develop accounting
policies.
The chapter covers the registration process for companies wishing to sell debt or stock
securities in interstate offerings to the general public. It also discusses the various periodic
reporting requirements. There is also a brief discussion of the Foreign Corrupt Practices Act of
1977. The key provisions of the Sarbanes-Oxley Act of 2002 are also discussed.
Many students may initially be uncertain regarding the regulatory structure of the 1933
and 1934 Acts. However, only fundamental knowledge of this structure is required for
understanding the chapter. The primary focus of Chapter 14 is on the current accounting
requirements, including period reporting requirements consistent with the 1933 and 1934 Acts..
After studying the chapter, students will have an awareness of the SEC, its role in the
establishment of disclosure standards, and the accountant’s responsibility when working with
publicly held companies.
Chapter 14 – SEC REPORTING
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LEARNING OBJECTIVES
When students finish studying this chapter, they should be able to:
LO 14-1 Understand the SEC’s structure and regulatory authority.
LO 14-2 Understand the process of registering securities with the SEC.
LO 14-3 Understand periodic reporting requirements.
LO 14-4 Understand requirements for management reporting laws.
LO 14-5 Understand disclosure requirements.
SYNOPSIS OF CHAPTER 14
SEC Reporting
The Genesis of Securities Regulation
International Harmonization of Accounting Standards for Public Offerings
LO 14-1 Understand the SEC’s structure and regulatory authority.
Securities and Exchange Commission
Organizational Structure of the Commission
Laws Administered by the SEC
The Regulatory Structure
LO 14-2 Understand the process of registering securities with the SEC.
Issuing Securities: The Registration Process
The Registration Statement
SEC Review and Public Offering
Accountants’ Legal Liability in the Registration Process
LO 14-3 Understand periodic reporting requirements
Periodic Reporting Requirements
Accountants’ Legal Liability in Periodic Reporting
Electronic Data Gathering, Analysis, and Retrieval (EDGAR) System
LO 14-4 Understand requirements for management reporting laws.
Foreign Corrupt Practices Act of 1977
Sarbanes-Oxley Act of 2002
Title I: Public Company Accounting Oversight Board
Title II: Auditor Independence
Title III: Corporate Responsibility
Title IV: Enhanced Financial Disclosures
Chapter 14 – SEC REPORTING
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Title V: Analyst Conflicts of Interest
Title VI: Commission Resources and Authority
Title VII: Studies and Reports
Title VIII: Corporate and Criminal Fraud Accountability
Title IX: White-Collar Crime Penalty Enhancements
Title X: Sense of Congress Regarding Corporate Tax Returns
Title XI: Corporate Fraud and Accountability
Dodd-Frank Wall Street Reform and Consumer Protection Act
Jumpstart our Business Startups (JOBS) Act
LO 14-5 Understand disclosure requirements.
Disclosure Requirements
Management Discussion and Analysis
Pro Forma Disclosures
Chapter 14 – SEC REPORTING
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NOTES ON POWERPOINT SLIDES
We have attempted to provide PowerPoint slides that will be useful to a broad set of users. Since
instructors often have different styles and preferences, we have attempted to include slides that
will accommodate different approaches and that can be adapted to classes with different levels of
preparation. For example, some instructors prefer to introduce the material before students have
read the chapter. We have tried to facilitate these types of introductory discussions by including
slides that replicate key points from the chapter. Other instructors expect students to have read
the chapter and attempted homework problems before coming to class. As a result, they may not
find it useful to review all of the topics in the chapter or to include slides that simply review
many of the details they expect students to study before class. However, instructors following
this approach often like to use sample exercises and problems built into the slides that allow
them to have extended discussions or to facilitate group interaction in class.
If instructors elect to spend two class periods on the same subject, they might find a combination
of both styles to be useful by first introducing foundational material before students have read
the chapter and studied the topic, followed by an extended discussion the next class period after
students have read the chapter and attempted homework problems.
We have tried to develop slides that can facilitate a flexible approach to allow instructors to
select the slides that best match their objectives and style for class discussions. This is the reason
we are including over 100 slides for some chapters in the text. We do not expect all instructors
to use all slides, but the slide files should help support different teaching approaches and allow
instructors to select the subset of slides that best matches their specific discussion objectives.
The slides are organized by learning objective. We have included a slide at the beginning of
each learning objective to show where the new material begins. Instructors may or may not want
to use these learning objective slides in class. We provide them primarily as a way of organizing
the material. We also include short multiple-choice questions at the end of most learning
objectives. Some instructors find it useful to pause periodically during class to assess students’
level of understanding. For this reason, we include several “practice quiz questions” that can be
used throughout class discussions to engage students, help them focus on key points, or to
facilitate group interaction. Finally, we provide longer exercises and problems that many
instructors find useful in assessing understanding and encouraging group learning.
LO 14-1 Understand the SEC’s structure and regulatory authority.
• Slides 3-7 summarize the history of securities regulation.
• Slides 8 introduce the current efforts of the FASB and IASB to harmonize accounting
standards for public offerings.
• Slides 9-16 summarize the SEC and its regulatory structure.
LO 14-2 Understand the process of registering securities with the SEC.
• Slides 20-31 explain the securities registration process.
LO 14-3 Understand periodic reporting requirements.
• Slides 35-41 summarize periodic reporting requirements with the SEC (Forms 10-K,
10-Q, and 8-K).
Chapter 14 – SEC REPORTING
14-5
• Slide 42 introduces the EDGAR system developed by the SEC to make disclosures
easily accessible to all stakeholders and interested parties.
LO 14-4 Understand requirements for management reporting laws.
• Slide 46briefly introduces the Foreign Corrupt Practices Act of 1977.
• Slides 47-59 introduce the Sarbanes-Oxley Act of 2002 with a brief description of
each major section
• Slides 60-61 briefly introduce the Dodd-Frank Wall Street Reform and Consumer
Protection Act and the Jumpstart our Business Startups (JOBS) Act.
LO 14-5 Understand disclosure requirements.
• Slides 65-66 introduce additional disclosure requirements (MD&A) and pro forma
disclosures.
Chapter 14 – SEC REPORTING
14-6
TEACHING IDEAS
1. The instructor could invite a stockbroker into class to speak about the registration process
and how the stock exchanges operate. This may enhance students’ understanding of the
process and their interest in the subject matter.
2. Students could be assigned to review the SEC filings of a Fortune 100 firm. These filings
are available from the SEC’s EDGAR at www.sec.gov. For example, students could be
asked to determine if any Form 8-Ks were filed for their company and to describe the
nature of any filed 8-Ks.
3. Students could be asked to prepare a written memo describing the contents of a
Management and Discussion Analysis (MDA) in an annual report to shareholders. What
is the nature of the data being presented, and what is the format of the disclosure?
Chapter 14 – SEC REPORTING
14-7
DESCRIPTIONS OF CASES AND EXERCISES
C14-1
LO 14-1,
LO 14-4
20 min.
E
Objectives of Securities Acts [CMA Adapted]
Students are asked to explain the basic objectives of the 1933 and 1934 Acts and
to discuss the provisions of the Foreign Corrupt Practices Act of 1977.
C14-2
LO 14-1,
LO 14-2
20 min.
E
Roles of SEC and FASB [CMA Adapted]
This case examines the interrelationship between the SEC and FASB. Students
must also define the legal role of the SEC.
C14-3
LO 14-3
20 min.
E
Information Content of Proxy
This case provides opportunities to analyze the proxy of a publicly held company
and to survey the types of information presented in the proxy.
C14-4
LO 14-3
20 min.
M
Form 10-K Disclosures
Students have to obtain the most recent Form 10-K (the annual report) for
Caterpillar Inc. or another different company and answer four questions
regarding information presented in the Form.
C14-5
LO 14-2
25 min.
M
Registration Process [CMA Adapted]
This case focuses on the registration process required for a company making an
initial public offering.
C14-6
LO 14-3
20 min.
M
Change in Auditors and Form 8-K [CMA Adapted]
This case focuses on the information required to be filed with respect to a change
in auditors. Students will also have to identify a company that has made a change
in its auditor during the last two years and describe the various aspects associated
with this change.
C14-7
LO 14-3
25 min.
M
Form 8-K [CMA Adapted]
Discussion centers on the purpose, the timing, the format, and the role of
financial statements in the filing of Form 8-K. Students should also identify five
circumstances under which the SEC requires the filing of Form 8-K.
C14-8
LO 14-4
25 min.
M
Audit Committees [CMA Adapted]
Students must discuss the role and duties of the audit committee and its
relationship with the company’s internal audit staff as well as explain why the
audit committee should be outside board members.
Chapter 14 – SEC REPORTING
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C14-9
LO 14-1
45 min.
M
SEC
Research case using the Internet or other sources to describe Staff Accounting
Bulletins and to provide information on the SEC’s Division of Enforcement.
C14-10
LO 14-3
45 min
M
EDGAR Database
Research case using the Internet or other sources to identify the types of reports
to the SEC during the prior year made by a company selected by the student
C14-11
LO 14-4
40 min.
M
Discovery Case
Students must find two recent articles on the Sarbanes-Oxley Act of 2002 and
review the articles and summarize the evidence in a 1-2 page report. Several
useful examples of research data bases are provided.
E14-1
LO 14-1
20 min.
E
Organization Structure and Regulatory Authority of the SEC [CMA
Adapted]
Six multiple-choice questions examining the structure of the SEC.
E14-2
LO 14-2
15 min.
E
Registration of New Securities [CMA Adapted]
Three multiple-choice questions on the registration process.
E14-3
LO 14-3
20 min.
E
Reporting Requirements of the SEC [CMA Adapted]
Seven multiple-choice questions on specific disclosure standards of the SEC.
E14-4
LO 14-2,
LO 14-3
20 min.
E
Corporate Governance [CMA Adapted]
Four multiple-choice questions on the SEC’s standards of corporate governance,
including the Foreign Corrupt Practices Act of 1977, and audit committees.
E14-5
LO 14-2
30 min.
H
Application of Securities Act of 1933 [AICPA Adapted]
Three items are to be evaluated in terms of their applicability under the
Securities Act of 1933. This exercise may require students to do some extended
research into the Securities Act of 1933.
E14-6
LO 14-2
20 min.
M
Federal Securities Acts [AICPA Adapted]
Seven multiple-choice questions relating to federal security acts must be
answered. These questions required detailed knowledge of key securities acts.
•