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Unformatted text preview: EXAM TWO CHAPTER FIVE: REGULATORS: SEC- protects investors and maintains the integrity of the securities market- oversees Board of Directors, management, and auditors SEC Reports: Form 10-K- Annual Report Form 10-Q- Quarterly Report Form 8-K- Current Report MANAGEMENT: CEO- highest officer in the company CFO- highest officer associated with the financial and accounting side of the business These two officers must certify that: 1. Each report filed with the SEC does not contain untrue information or omit any material fact. 2. Each report fairly represents all material and all material respects the financial condition, result of operations, and cash flows in the company. 3. There are no significant deficiencies and material weaknesses in the internal controls over financial reporting. 4. They have disclosed to auditors and audit committee of the board any weakness in internal controls or any fraud involving management or other employees who have significant role in financial reporting. Executives bear the MOST responsibility. If they certify false financial reports they are subject to a fine of 5 million dollars and a 20 year prison term. The members of the accounting staff who actually prepare the details of the reports bear professional responsibility, although their legal responsibility is smaller. DIRECTORS: Board of Directors- elected by stockholders- responsible for ensuring that processes are in place for maintaining the integrity of the companys accounting, financial statement preparation, and financial reporting. The Board of Directors must be composed of non- management (or independent) directors with financial knowledge. The Board of Directors is responsible for hiring the companys independent auditors, and meet separately with those auditors to discuss managements compliance with financial responsibility. Board of Directors-- Oversee management and auditors- Elected by stockholders- Responsible for ensuring processes are in place for maintaining integrity of financial records.- Composed of non-management (or independent) directors- Responsible for hiring the companys independent auditors- Meet separately with auditors to discuss managements compliance with their financial reporting responsibilities AUDITORS: PCAOB- standards independent auditors must follow as set by the SEC Unqualified, or clean, audit opinion- CPA firm assumes part of the financial responsibility for the fairness of the financial statements and related presentations- states that financial statements are fair presentation of GAAP. When unqualified or clean audit opinions are provided by CPA firms, this reduces the risk that the companys statements are misrepresented. As a result, rational investors and lenders should lower the rate of return (or interest) they charge for providing capital....
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- Spring '07