Securities Acts: Requirements for Accounting

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Companies issuing securities to the public are required to file registration reports and statements with the U.S. Securities and Exchange Commission (SEC) in accordance with the Securities Act of 1933 and the Securities Exchange Act of 1934. The 1933 act requires that a registration statement be filed and accepted by the SEC before securities are offered for sale. The SEC does not evaluate the merit of the securities, but determines only whether the disclosures provide sufficient information to the investment community.

Companies seeking to issue security offerings rely on specialists in accounting to meet the criteria of the securities acts. The chief accountant of the commission is the principal accounting adviser with respect to difficult or controversial accounting issues. The chief accountant is in charge of establishing, coordinating, and expressing the SEC policy regarding accounting and auditing standards. Policy decisions are published in the SEC Accounting Series Releases (financial reporting releases).


Under the 1933 act, a company undertakes its first offering of securities to the public market through a process referred to as an initial public offering (IPO). The registration statement submitted to the SEC for the IPO consists of two principal components: Part I is the prospectus, an offering document to be distributed to prospective buyers; and Part II is supplemental information that is available for public inspection at the office of the SEC.

In 1982 the SEC adopted a revised framework for registration as a part of the integrated disclosure system, where the form to be used by the registrant depends on the periodic reporting history and the nature of specific transaction events. In the case of IPOs, for example, Form S-L becomes the forepart of the registration statement and outside front cover page of the prospectus.

Prospectus disclosures must provide the following information: summary of the securities offering, risk factors and the ratio of earnings to fixed charges, the use of proceeds, determination of offering price, dilution, plan of securities distribution, description of securities to be registered, and interests of named experts and counsel. The prospectus must also provide information related to the registrant, such as description of business and property, legal proceedings, market price of equity and dividends, financial statements, supplementary financial information, executive compensation, and management's discussion and analysis (MD&A) regarding disagreements with accountants.

Part II of the IPO covers other information not required in the prospectus such as issuance- and distribution-related expenses, indemnification of directors and officers, recent sales of unregistered securities, exhibits, and financial statement schedules. An accountant's report is required for audited information to be included in this part.


The 1934 act regulates and controls the securities markets and related matters and practices. This act also includes regulations for reporting and registration forms for the financial statements and audit requirements. The principal annual report to be filed by publicly owned commercial and industrial companies is Form 10-Kwhich includes financial statements audited by an independent auditor who is registered with the Public Company Accounting Oversight Boardand related information, identified as supplementary data. Additionally, an audit of internal control is required by the independent auditor who provided the financial audit.

Form 10-K requires information about the business, properties, legal proceedings, security holder voting, MD&A regarding financial conditions and operations results, and information about the elective officers of the corporation, their compensation, and their security ownership. Ancillary to the 10-K is Form 8-K, which calls for exhibits, financial statements, schedules, and reports, including a description of loans to officers and directors and their transactions in company equity securities.

The requirements for both Form 10-K and Form 8-K are set forth by SEC Regulation S-X. Under this regulation, the balance sheets at the end of each of the two latest fiscal periods, as well as the income statements and cash flow statements for each of the three latest fiscal years, should be filed within sixty days after the fiscal year ends (a requirement as of December 15, 2005; the deadline remains the same as of December 15, 2006). The principal executive officer, the principal financial officer, the principal accounting officer (the controller), and a majority of the board of directors must sign the Form 10-K.

Issuers of securities registered under the 1933 and 1934 securities acts are required to file Form 10-Q for each of the first three quarters of the fiscal year within forty days after the end of each of the first three fiscal quarters of each year. (A requirement as of December 15, 2005. The deadline is within 35 days of each of the first three fiscal quarters, as of December 15, 2006.) There is also included financial information such as a condensed financial statement, MD&A, financial condition and results of operations as required in Regulation S-K and Regulation S-X; and special event reports occurring during the quarter, such as legal proceedings, defaults upon senior securities, and matters to be voted by security holders. Form 10-Q may be integrated with the quarterly stockholders' report if the combined report contains full and complete answers to all items required by Part I of Form 10-Q.

The Sarbanes-Oxley Act of 2002 introduced a new section, Section 13(j) to the Securities Exchange Act of 1934. This section requires that the MD&A in each annual and quarterly report must disclose:

all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the issuer with unconsolidated entities or other persons, that may have a material current or future effect on financial condition, changes in financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. (Sarbanes-Oxley Act, Section 401 [a])


The SEC Division of Corporation Finance is in charge of reviewing registration statements as well as other annual and periodic reports. The division establishes standards for economic and financial disclosure by determining the nature of information required in the registration statements, reports, and other documents to be filed with the SEC. In addition, the division enforces provisions with respect to securities offered for sale to the public, listed for trading on securities exchanges, or traded in the over-the-counter market. The division is organized into twelve branches of corporate analysis and examination, covering approximately forty industry groups based on standard classification codes.

Preparation of the registration statements and related reports and documents may take three to four months. The lengthy timetable is governed by legal considerations. All parties involved in the preparationsuch as the accounting firm, attorneys, and other professionalsmay be subject to civil and criminal penalties under the 1933 securities act for any misstatements or omissions.

All reporting companies, both domestic and foreign, must file registration statements, periodic reports, and other forms electronically through the Electronic Data Gathering Analysis and Retrieval system. Filings are made to the Division of Corporation Finance where the statements are reviewed to determine whether the disclosures comply with the 1933 and 1934 securities acts. In cases where deficiencies are identified, the division requests that the registrants complete or explain the items in question.


The principal disclosure forms identified below are intended to provide a convenient point of reference when only a general understanding of their purpose is required. Accountants, after consulting the registrants, determine whether the company meets the criteria for the use of a particular form.

Forms required by the 1933 act include: S-1 through S-3, the general forms for registration; S-4, for business combinations; S-11, for estate entities; and SB-1 and SB-2, for small businesses. Form N-1 is used for open-ended investment companies; N-2, for closed-ended investment companies; N-3 and N-4, for insurance companies offering annuity contracts; and N-5 and N-SAR, for registered international investment companies.

Under the 1934 securities act, the principal forms required of most registrants are 10-K and 10-KSB, with the latter appropriate for small businesses. Other forms are: 11-K, for employee stock purchase or employee option plans; 10-Q, for quarterly reports; 8-K, for certain significant corporate events; 15, to terminate registration; 10-K, for foreign governments; and 18, for the political subdivisions of foreign governments.


As a general rule, a foreign company intending to offer securities in the United States qualifies as a foreign private issuer, unless: (1) more than 50 percent of its outstanding voting securities are held by U.S. residents; and (2) either the majority of its executive officers are U.S. citizens or residents, or its business is administered or located in the United States.

Under Regulation S-X, foreign issuers are required to provide disclosures under U.S. generally accepted accounting principles (GAAP). SEC Accounting Bulletin 88 allows the foreign issuer to include U.S. GAAP disclosures in the MD&A for information that is not required under its home country GAAP.

Form 20-F is most commonly used for the registration statement and for the annual report. Foreign issuers are also required to furnish reports on Form 6-K instead of Form 10-Q and Form 8-K, which are applicable to U.S. issuers. Some exceptions are possible for Canadian companies that choose to use the multijurisdictional disclosure system (MJDS) forms.

see also Accounting ; Financial Statements ; Securities and Exchange Commission


Arkebauer, J., with R. Schultz (1998). Going public. Chicago: Dearborn.

2005 Essential Guide to the Securities and Exchange Commission (SEC) with Comprehensive Coverage of Agency Forms, Regulations, Staff Legal Bulletins, Publications for Investors, Rulemaking, Opinions, Orders, and Reports & Stocks and Bonds, Investment Advisers, Stock Exchanges, Mutual Finds, Accountants, Broker-Dealers, Small Business. (2005). [DVD-ROM]. Progressive Management.

U.S. Securities and Exchange Commission.

Samir Fahmy

Laurence Mauer

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Securities Acts: Requirements for Accounting

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