Page 680 - Encyclopedia of Business and Finance

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Securities Acts: Requirements for Accounting

REQUIREMENTS OF THE The Sarbanes-Oxley Act of 2002 introduced a new
SECURITIES AND EXCHANGE ACT section, Section 13(j) to the Securities Exchange Act of
OF 1934 1934. This section requires that the MD&A in each
The 1934 act regulates and controls the securities markets annual and quarterly report must disclose:
and related matters and practices. This act also includes
all material off-balance sheet transactions,
regulations for reporting and registration forms for the
arrangements, obligations (including contingent
financial statements and audit requirements. The princi- obligations), and other relationships of the issuer
pal annual report to be filed by publicly owned commer- with unconsolidated entities or other persons, that
cial and industrial companies is Form 10-K—which may have a material current or future effect on
includes financial statements audited by an independent financial condition, changes in financial condi-
auditor who is registered with the Public Company tions, results of operations, liquidity, capital
Accounting Oversight Board—and related information, expenditures, capital resources, or significant
identified as supplementary data. Additionally, an audit of components of revenues or expenses. (Sarbanes-
internal control is required by the independent auditor Oxley Act, Section 401 [a])
who provided the financial audit.
Form 10-K requires information about the business, THE ROLE OF THE DIVISION OF
properties, legal proceedings, security holder voting, CORPORATION FINANCE
MD&A regarding financial conditions and operations The SEC Division of Corporation Finance is in charge of
results, and information about the elective officers of the reviewing registration statements as well as other annual
corporation, their compensation, and their security own- and periodic reports. The division establishes standards
ership. Ancillary to the 10-K is Form 8-K, which calls for for economic and financial disclosure by determining the
exhibits, financial statements, schedules, and reports, nature of information required in the registration state-
including a description of loans to officers and directors ments, reports, and other documents to be filed with the
and their transactions in company equity securities. SEC. In addition, the division enforces provisions with
The requirements for both Form 10-K and Form 8- respect to securities offered for sale to the public, listed for
K are set forth by SEC Regulation S-X. Under this reg- trading on securities exchanges, or traded in the over-the-
ulation, the balance sheets at the end of each of the two counter market. The division is organized into twelve
latest fiscal periods, as well as the income statements and branches of corporate analysis and examination, covering
cash flow statements for each of the three latest fiscal approximately forty industry groups based on standard
years, should be filed within sixty days after the fiscal classification codes.
year ends (a requirement as of December 15, 2005; the Preparation of the registration statements and related
deadline remains the same as of December 15, 2006). reports and documents may take three to four months.
The principal executive officer, the principal financial
The lengthy timetable is governed by legal considerations.
officer, the principal accounting officer (the controller),
All parties involved in the preparation—such as the
and a majority of the board of directors must sign the accounting firm, attorneys, and other professionals—may
Form 10-K.
be subject to civil and criminal penalties under the 1933
Issuers of securities registered under the 1933 and securities act for any misstatements or omissions.
1934 securities acts are required to file Form 10-Q for
All reporting companies, both domestic and foreign,
each of the first three quarters of the fiscal year within must file registration statements, periodic reports, and
forty days after the end of each of the first three fiscal other forms electronically through the Electronic Data
quarters of each year. (A requirement as of December 15, Gathering Analysis and Retrieval system. Filings are made
2005. The deadline is within 35 days of each of the first
to the Division of Corporation Finance where the state-
three fiscal quarters, as of December 15, 2006.) There is
ments are reviewed to determine whether the disclosures
also included financial information such as a condensed comply with the 1933 and 1934 securities acts. In cases
financial statement, MD&A, financial condition and
where deficiencies are identified, the division requests that
results of operations as required in Regulation S-K and
the registrants complete or explain the items in question.
Regulation S-X; and special event reports occurring dur-
ing the quarter, such as legal proceedings, defaults upon
senior securities, and matters to be voted by security hold- PRINCIPAL DISCLOSURE FORMS
ers. Form 10-Q may be integrated with the quarterly The principal disclosure forms identified below are
stockholders’ report if the combined report contains full intended to provide a convenient point of reference when
and complete answers to all items required by Part I of only a general understanding of their purpose is required.
Form 10-Q. Accountants, after consulting the registrants, determine

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 657