Chap012 - Chapter 12 Outline I. In the United States, the...

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Chapter 12 Outline I. In the United States, the Securities and Exchange Commission (SEC), created by Act of Congress, is responsible for ensuring that complete and reliable information concerning publicly traded securities is available to investors. A. Although the SEC regulates requirements created by many legislative acts, the most significant are the Securities Act of 1933, the Securities Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002. B. The SEC has sought to accomplish its objectives by working to achieve several goals that include: 1. Assuring adequate disclosure of data before securities can be bought and sold, 2. Preventing the misuse of information by inside parties, 3. Regulating the operation of stock exchanges and other securities markets, and 4. Prohibiting the dissemination of materially misstated information. C. Disclosure requirements of the SEC are contained primarily in two sets of regulations: 1. Regulation S-K establishes rules for all nonfinancial information, such as management’s discussion of the issuer’s business activities. 2. Regulation S-X prescribes the form and content of the financial statements that are included in the various filings. D. The ability to establish disclosure requirements gives the SEC the ultimate authority for accounting principles in this country, although it has generally allowed the FASB to set official guidance. E. The SEC's integrated disclosure system requires that most information that is reported to the SEC must also go to the company's stockholders at various times throughout the year. II. As a direct result of the corporate accounting scandals exposed in 2001 and 2002, Congress passed the Sarbanes-Oxley Act of 2002. This legislation has had a wide-ranging impact on corporate financial reporting and the accounting profession as a whole. A. One of the most important results of this act is the creation of the Public Company Accounting Oversight Board. 1. This five-member board is appointed by the SEC and funded by fees assessed against publicly traded companies. 2. The board has been given the authority to enforce auditing, quality control, and independence standards. Such power reduces the accounting profession’s ability to regulate itself as it has done in the past seven decades. B. All accounting firms that audit companies with securities that are publicly traded must register with the Public Company Accounting Oversight Board. 1. This registration process allows the new board to gather considerable information from the public accounting firms. 2. All registered firms are subject to inspection by the Public Company Accounting Oversight Board as often as each year. C. The Sarbanes-Oxley Act eliminates a number of consulting services that an accounting firm can perform for an audit client. The goal of this approach is to strengthen the independence of the auditing profession. D. The Sarbanes-Oxley Act also requires the audit committee of a company’s Board of Directors to be
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This note was uploaded on 09/13/2011 for the course AC 354 taught by Professor Worms during the Winter '11 term at Pennsylvania State University, University Park.

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Chap012 - Chapter 12 Outline I. In the United States, the...

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