Ch. 15 - Chapter 15 - Sarbanes-Oxley and Securities...

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Chapter 15 - Sarbanes-Oxley and Securities Regulations ANSWERS TO REVIEW QUESTIONS - CHAPTER 15 INTRODUCTION 1. What is a Security? Yes. Under the Federal Securities Act of 1933, a security exists whenever one person invests money in a common enterprise with the exception of profits resulting from the efforts of another person. Upon examination of these orange-grove transactions, these essential requirements of a security were found to be present. Therefore, these sales of land and service contracts, when taken together, were subject to the registration requirements of the 1933 act. Since these registration requirements were not satisfied, the controllers of these Howey companies have violated the Federal Securities Act of 1933. Securities and Exchange Commission v. W.J. Howey Co. , 328 U.S. 293 (1946). 2. Securities and Exchange Commission (a) 1934 through the Securities Exchange Act of 1934. (b) The SEC has both quasi-legislative and quasi-judicial authority. SARBANES-OXLEY ACT OF 2002 3. Revitalization of SEC The primary method of revitalizing the SEC was a large budget increase. This financial support permits the SEC to enhance its investigative and enforcement staff. Other ways the SEC’s authority increased was through the creation of the Public Company Accounting Oversight Board and its work to ensure auditors do their work in the interest of protecting the public investors. 4. Accounting Reforms The PCAOB requires accounting firms to separate their auditing functions from their consulting services. Also auditors are not allowed to perform various nonauditing functions, such as bookkeeping, systems design, appraisals and other valuations, actuarial services, human resources functions, and investment banking. 15-1
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Chapter 15 - Sarbanes-Oxley and Securities Regulations 5. Corporate Governance Due to the requirements of the Sarbanes-Oxley Act, independence is now part of several aspects of how a public company operates. First, all members of the company’s audit committee must be independent of the company’s management. The CFO no longer can control the work of the audit committee. Second, through its regulations, the SEC requires that a majority of the directors be independent. Third, the auditor reports to the audit committee not to the directors or company executives. Fourth, at least one member of the
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This note was uploaded on 09/21/2011 for the course LEGL 2700 taught by Professor Reed during the Spring '07 term at University of Georgia Athens.

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Ch. 15 - Chapter 15 - Sarbanes-Oxley and Securities...

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