Securities Acts: Requirements for Accounting

• Author: Samir Fahmy, Laurence Mauer
• Pages: 656-658

Page 656

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).

REQUIREMENTS OF THE SECURITIES ACT OF 1933

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)...