 Hello and welcome to the session in which you would look at the SEC reporting requirements. Now the SEC is an important topic on the CPA exam, whether you are taking DEC or FAR. And in this session, I will cover several topics about the SEC, the SEC roles, reporting requirement, the 1933, 1934 acts, and forms that you will need to file with the SEC as a company. So it's very important that you have a good understanding of the role of the SEC because you might have questions whether it's on BEC and sometimes even on REG. Somehow, BEC is involved somewhere. So that's why the SEC is an important topic for the CPA exam overall. Now whether you are studying for your CPA exam or you are an accounting student, I strongly suggest you take a look at my website farhatlectures.com. No, I don't replace your CPA review course. I can't do that. I'm a useful addition to your CPA review course. I explain the material differently than your CPA review course, which will help you with your CPA review course, which will help you with your CPA examination. Your risk is one month of subscription. That's what you do if you decided to try me out. Your potential gain is passing the exam. And if not for anything, take a look at my website to find out how well or not well your university doing on the CPA exam. I do have resources for other college courses as well. Please take a look at my website. If you haven't connected with me on LinkedIn, please do so. Take a look at my LinkedIn recommendation. Like this recording. Share it with other. Subscribe to my YouTube. Connect with me on Instagram, Facebook, Twitter and Reddit. So it's important to understand the big picture. Why the SEC exists and when did it exist? Well, the SEC existed as a result of the 1929 stock market crash. The government wanted to restore confidence in the stock market. So what they did, they created this federal agency to what? Regulate trading. Why? Because people lost confidence in the stock market. So there we go. The government said we're going to create an agency that's going to oversee the financial market. And if you understand this big picture, you will understand why the SEC asked for certain material. It's basically to prevent fraud and misrepresentation to the public. So when when brokers when individuals sell stocks to the public, you want to make sure that the public or investors are informed. So the SEC role is to make sure those investors are enrolled are informed. So what tools does the SEC have in order to do so? Well, you have the Securities Acts of 1933, which will cover IPO, IPO stand for initial public offering. And what is initial public offering? It's when the company first go public. For example, Facebook now is a public company. But up until 2012, I believe, Facebook was a private company. So before they go public, before they go public, before Facebook sell their stocks to the public, they have to issue something called a prospectus we'll talk about which it's part of the registration statement. So the 1933 deals with IPOs and deals with something called the prospectus which we'll talk about. Another tool at the SEC disposal is the Securities Act of 1934, which can talk about those little bit more in details. The 1934 deals with the secondary market. So once Facebook is publicly traded, okay, now it's traded. People are buying and selling Facebook. It's no longer a new issue, a new issuance. Then the company will have to issue 10K, 10Q, 8K and many other forms. Then they follow the SEC Act of 1934, which we'll talk about little bit more in detail. This is just an overview. Then the SEC has something called regulation SX, which is covered financial data, financial means, dollar amount, such as financial statements, notes and schedule. They also have regulation SK, mostly covered non financial data such as disclosure, standard and certain aspects of the corporate annual report. It doesn't mean they don't cover financial, but a great degree non financial for the SK and they have many other forms that are required. So those are the tools that they have. Let's start by looking at the SEC Act of 1933. Once again, here you are dealing with the IPO. So before a company can go public, what do they have to do? They have to file what's called registration statement and the registration statement has two part. One part of it has called the prospectus and what's the prospectus? Basically provide information, information to investors to make an informed decision. Just give the information to the investors because they're going to be investing money in your company. What does the information involve? It will involve disclosure about the securities offers. Just tell us about the securities that you are selling. Information similar to what's filed in an annual filing. Now you might be saying what's included in annual filing? We'll see in a moment. Okay. Audited financial statements. So the financial statements which will be part of the annual filing will be audited. And as an auditor, this is the riskiest type of audit because when you go public, everyone is relying on the auditor because the company did not have their financial statement publicly, their financial statements are not public yet. So there's a lot of heavy work on the auditor's part to make sure they do a good job. Obviously they'll have to also talk a little bit about the risk factor, which is also that's also part of the annual report. Just what risk factors do they, does the company face? So basically any other helpful information, any other helpful information will be disclosed in the registration statement, which is in the perspective, which is part of the registration statement. The second part of the registration statement is something we called basically different agreements relevant to securities, articles of incorporation, major contract, legal opinion, agreement with the underwriters. So basically other information that's helpful to the investors. That's what we are doing. Now bear in mind that securities stocks cannot be offered to the public until the registration is effective. And what is the registration effective? 20 days after filing. So you file and 20 days later, the company can sell to the public unless there's an amendment basically, oh, hold on a second, we made an error, or there's a stop order. So basically the SEC said, no, you cannot sell it for some reason. Okay, now meanwhile, there's something called red herring and red herring is the preliminary prospectus. So you can show the investors certain information about your company, but not everything that is called the red herring before, before the SEC agrees for you to sell it. So this is all you need to know pretty much about the Securities Act of 1933. So once your stocks are traded, so once the stock go public, now you follow the Securities Acts of 1934. This is called the Secondary Market. Secondary Market means your stocks now is traded. Now you have to issue financial report on regular basis. So who follows, first of all, who follows the Securities Act of 1934? List securities on national securities exchanges. So if your stock is traded on a national exchange, such as the NYSC, New York Stock Exchange, or NASDAQ, then you have to follow the Securities Act of 1934. If you have at least 500 shareholders of equity and total gross assets exceeding 10 million, now you fall under the Securities Act of 1934. And if you're already registered with the SEC of 1933, so if you follow the 1933, you're going to have to follow the 1934. What forms do you need to file? Well, here are the forms. There are many 10K, 10Q, 8K, and those are usually mostly tested on the exam. It doesn't mean the others are not 11K, Form 3, 4, and 5, Form 20F, 40F, and 6K. And the reason those are in green because those are for foreign companies and we'll talk about them in a moment. Now I'm going to go over each form, especially the one in red, a little bit more in details, just to kind of tell you what they are. When you hear the form 10K, that's an annual report. That's the annual report. 10K equal the annual report. When do you have to file the 10K? Well, depending on your size, the company size. So we have something called large accelerated filers. Who are the large accelerated filers? If you have 700 million in market capitalization, how do you measure your market capitalization? It's the number of shares that you have times the stock price. And if the number of shares outstanding times the stock price is more than 700 million, you are considered large accelerated filers, you have to file your annual report 60 days after your year end. Now your year end could be December 31st, could be the end of March, could be the beginning of July, whatever your year end is, it could be calendar or a fiscal year. Then we have accelerated filers, accelerated filers, the market cap or market capitalization for short, market cap for short or market capitalization. If you have 75 million to 700 million, you have 75 days to file. And if you are a small reporting company, basically your market cap is less than 75 million, you have 90 days. Yes, smaller companies, they have more time because the assumption is they have less resources to get their financial statement ready. And large accelerated filers because they are large, they are important, you want to let the public know about their numbers as soon as possible. So it is in the annual 10k audited financial statement. And I highlight audited, make sure you understand it's audited, it gets an audit. And those financial statements are certified by the CEO, the CFO of the company. And the financial statement would include notes, disclosure, schedule, summary of financial data, it's going to be the current year, as well as prior years, something called management discussion and analysis and DNA where the company talks about their performance, basically give their best picture under MDNA. So this is the 10k. 10Q, Q, Q implies that it's a quarterly report. So the 10Q is a quarterly review. Notice I hear I said review and I'm going to explain what a review is in a moment. Again, you have large accelerated and accelerated filers, the large accelerated and accelerated filers, they have 40 days after the end of the quarter. So if the quarter and December 31st, you have 40 days to file your quarterly numbers. If you are a small company, small reporting which is less than 75 million in market cap, you have 45 days. So what you do is you prepare financial statement on a quarterly basis, quarter one, quarter two, third quarter, those are called any any financial statement that's not a yearly, it's called interim financial statement. Interim financial statement means it's less than a year. And those financial statements are reviewed. Again, what is reviewed? Not again, reviewed is not audited. All what a review is, is you ask you ask questions about the company, you ask management questions, and you perform analytical procedures. So during the review, you don't audit the company. Basically, you put the numbers together as an auditor. And basically based on analytical procedures and inquiries, because you don't have enough time to audit the financial statement, because it's only for a short period of time. It's an interim financial statement. So the interim financial statement, we say they are reviewed. So simply put, you don't say they are in compliance with gap, you just say, I'm not aware that they're not in compliance with gap. So you give negative, negative assurance, negative assurance, you don't say positively, they are in compliance, but you don't say they are not, you just say you're not aware that they're not. Okay, that's negative assurance. So what would the five quarterly report to include if there's any legal proceeding, you'll have to talk about this changes and securities and indebtedness of the company matters submitted to shareholders for vote, exhibit of the form 8k, what's 8k, we're going to talk about it next, anticipated effect of new accounting principles, if there's any new account, upcoming new accounting principle, like new revenue recognition principle, you might want to say, it's, it's upcoming, it's going to be implemented into quarters. And this will be the effect on the financial statement. Okay. 8k, when do you file the 8k, 8k is on demand, you could file it every day, or it may you may never file it depending on what happened. So this form is filed to report major corporate events. So what is considered a major corporate event? If you if the corporate asset acquisition or disposal, you bought a new like, and you bought a large part and another company, or you bought a new asset that's important, changes in securities and trading market, there's any changes in your securities or your trading of your securities, changes to accountant or financial statements, if there's any changes, you went went back and you made changes to your financial statement, your auditor, you changed your auditor, you change your CEO, corporate governance or management, for example, Chipotle hired recently a new CEO, the CEO that they hired was the four, the former CEO of Taco Bell, that was a major event. So they filed, so Chipotle filed an 8k to let the investor, investors know that we hired a new CEO who happens to be the former CEO of Taco Bell. Okay, this is one you file an 8k something like this, or any other major event that the company considered major. Let's talk about foreign related forms and specifically form 20f and 40f. Just like US companies, they'll have to file an annual report with the SEC, foreign companies would also have to file their annual reports. However, we have two types of annual foreign reports, 20f and 40f. Let's start with 40f. 40f, if you're a Canadian company, you will file a form called 40f. For anyone else, Mexico, Japan, Europe, Asia, anywhere else in the world, they will need to file form 20f. So simply put, the Canadian we have a special treatment for the Canadian, they file 40f. Everybody else file form 20f. Remember, F is for foreign, it's easy for you to remember on the exam day. Usually companies, foreign companies, they use the IFRS, the International Financial Reporting Standard. If they're not using IFRS, and obviously if they're not using gap, and they have to reconcile, so they're using some other method, which is very unusual because most companies use IFRS if they don't follow gap. Another form that's related to the foreign related, it doesn't end with F, it's called 6k. This form is filed semi-annually by foreign private issuers. Private issuers, it means they're not selling their stocks on a public, on a national exchange. This form is similar to 10Q and can contain unaudited financial statement. Remember, this is for, so if you're going to invest in them, you're privately doing so, so you don't want audited financial statement. You'll have interim period, MDNA, and certain disclosure. So they will have certain disclosures for those, for those type of filing. Other forms, we could have form 3, 4 and 5 required to be filed for directors, officers or beneficial owners of more than 10% of a class of equity. So if you are a major owner in a company, you want to let the public know that, for example, Warren Buffett, when he buys a large chunk of a company, we have to know about this, if they own more than 10%. So this is, this is the forms that they use, 3, 4 and 5. We also have form 11k. This is an annual report of the company's employee benefit plan. So if the company have an employee benefit plan, basically a 401k or some type of a pension, they report this. Usually it's a pension, dealing here with a pension. Then they report their figures about the pension. One more thing, there's something called shelf registration under the 1933 Act, because think about it. Do you have to file all this paperwork, the prospectus, the registration statement every time you need to issue new stocks? And the answer is no. Companies may file registration statement covering a specified period of securities that may be issued over three years of the statement. So you would file your paperwork and you have three years to sell your stocks. So you don't, you know, if you're, if you're, if you're not needing money now, you could wait until six months later or a year later. So the issue or the company that, that have those shelf registration, they don't have to file a new registration statement. They don't have to wait 20, 20 days and they don't have to prepare a prospectus. So what does that mean? It means they can do whatever they want to. Not everyone. The issuer only required to provide updating a amendment or defer investors to quarterly or annual statement. Here what we are assuming, you are a seasoned company. So you already have quarterly report. You have annual statement like Tesla. When Tesla wants to sell new stocks, they don't have to go back and go to the underwriter and start a new prospectus, get their financial statement audited again. Well, guess what, they're already up and running. And what they do is they might have, they might have stocks approved already by the SEC under the Shelf Registration Act. So when they want to sell additional stocks, they don't have to go back to the SEC. Okay. So shelf registration is available to well known seasoned issuers. So here again, you already exist. And here's a deadline for 10K and 10Q. Although I showed it to you earlier, but this is basically another picture of it. For the 10K, if you're a large accelerated, you have 60 days and 7700 million accelerated filers, you have 75 days, small reporting companies 90 days. And this is the 40 days for the quarterly review if you're large and accelerated filers, 45 days, if you are considered small. At the end of this recording, I'm going to remind you that this topic is important on the CPA exam. And once again, I do not. I do not replace your CPA review course. I am a useful addition. My material will help you along your CPA review course. Don't shortchange yourself. Your CPA exam is a lifetime investment. Take it seriously. Study hard. Good luck. The CPA is worth it. And of course, stay safe.