One of the biggest downsides of a company going public is not only the costly price attached, but also the stressful drawn-out process of documents and regulations to follow. Going public is process private firms make when they issue shares of stock to the public for the first time. If a company wants to share stock to the public, it has to conduct an initial public offering (IPO). An IPO is a process that takes weeks or months for preparation. The process starts with retaining a law firm to engage in the tedious detailed disclosure documents needed for the IPO prospectus that is included in the Securities Exchange Commission Form S-1. The Securities Exchange Commission (SEC) overseas publicly trades companies and there are various documents that need to be disclosed which include financial statements, management information circulars, management’s discussion and analysis (MD&A), earnings release and prospectuses. Most disclosure documents must be filed with securities regulator. However, some don’t have to be filled, but instead posted on the funds website or sent to investors, these include quarterly portfolio disclosure. There are two main acts under the SEC. The first is The Securities Act of 1933 which is designed to prevent fraud in the sale of securities. It requires initial disclosures about securities, such as stocks, that are going to be sold to the public (Federal regulation of publicly traded companies, n.d.)
The second is The Securities Exchange Act of 1934
Publicly traded companies are subject to the reporting and disclosure requirements of the Securities Exchange Commission (SEC). The laws that govern the securities industry were established to provide transparency to investors, creditors and shareholders alike. According to Hoyle, Schaefer & Doupnik, (2015) there are seven major disclosure requirements, the first being a five-year summary of operations to encompass sales, assets, income from continuing operations. Followed by a description of business activities, a three year summary of industry segments to include foreign and domestic operations, a list of company directors and executives, quarterly market price of common stock for the last two years, restrictions on the company’s ability to continue paying dividends, and finally, an analysis of the company’s financial condition, changes in the conditions and results of operation.
Further, even in the pre-Sarbanes-Oxley era, the cost of an IPO, and the subsequent filing documents required by the SEC, is significant. I estimate the cost of the IPO to be $1 million in 1992, and $500,000 each year after for the filing requirements (or the cost of being public). These amounts are subtracted from the free cash flows in the appropriate years.
The SEC assists in providing investors with reliable information upon which to make investment decision. The Securities Act of 1933 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. The Securities Exchange Act of 1934 provides additional protection by requiring public companies and others to file detailed annual reports with the commission. Smackey Dog Food, need to file next forms:
The globalization of business activity has resulted in the need for a uniform set of accounting rules in all countries. With U.S. corporations doing so much business in other countries, it is imperative that the SEC and international regulatory boards devise a set of rules and regulations that would benefit both parties. If this did not happen, international companies would be able to do whatever they wanted without repercussion because of the discrepancies in the differing sets of rules. Accomplishing this universal set of rules would allow companies to list securities in any market without having to prepare more than one set of financial statements. There have been so many
In general, the main criticisms of the PCAOB are that it has not made sufficient it’s regulatory power, it is slow to act in its investigations of enforcement cases, and that it targets enforcement on smaller firms in order to protect the Big 4 firms, which are regarded as “too big to fail.” While I do not disagree with the fact that the PCAOB is slow and has not produced a significant amount of regulation, I do disagree with the criticism of the PCAOB as a regulatory body in general. I feel that certain members of the public desire absolute transparency in financial reporting, but do not understand the economy required to so. It is nearly impossible, not to mention impractical, to breakdown every aspect of a multi-billion dollar corporation to ensure that every transaction is accounted for
The SEC was created to help investors get reliable information about the company they are investing in. The Securities Act of 1933 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. The Securities Exchange Act of 1934 provides additional protection by requiring public companies and others to file detailed annual reports with the commission. The SEC follows the GAAP’s reporting requirement for financial statements. As for Smackey Dog Food they are a
First, Congress saw the need to create an independent body to oversee the audit of public companies that are subject to the securities laws. PCAOB was established to protect the investors and further the public interest in the preparation of informative, accurate, and independent audit reports for public companies. Before the SOX, The
Increased statutory compliance: Public securities are required to comply with increased laws and regulations of the stock exchange and any other governing body; whereas, in private securities the organization is required to comply with minimum statutory requirements.
The first problem derive from the flexibility that the IOSCO disclosure standards unequivocally grant to the securities regulators of the host country in a cross-border share offering. These standards cogitate that the core disclosure document will undertake "a minimum of tailoring to fit national requirements. (68) But the extent of national tailoring allowed under those standards could be extensive. The IOSCO standards specifically recognized that additional disclosure by foreign issuers will sometimes be essential in certain host countries because of local custom
The U.S. Securities and Exchange Commission (SEC) is in place to ensure that people who invest in publicly traded companies are protected, and that an efficient market is maintained in a fair and orderly fashion. The SEC has put in place several laws and rules to ensure that all investors have access to certain financial information before they buy stock in a company. This information is to remain public and readily available as long as the company is publicly traded. This means that the companies that are publicly traded must disclose this financial and other related information to anyone who requests it. Most companies have it posted online on their company website. These rules and laws ensure that investors are making informed decisions both before they buy stock and the entire
The Sarbanes-Oxley Act of 2002 (SOX) was passed by Congress and signed into law by President Bush to “mandate a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud” and applies to all public companies in the U.S., large and small (The Laws That Govern the Securities Industry, 2015). The main purpose of Sarbanes-Oxley is to “eliminate false disclosures” and “prevent undisclosed conflicts of interest between corporations and their analysts, auditors, and attorneys and between corporate directors, officers, and shareholders” (Neghina & Riger, 2009). As a whole, the Sarbanes-Oxley Act is very complex and affected organizations must do their due diligence to ensure they
Most corporate financing decisions in practice reduce to a choice between debt and equity. The finance manager wishing to fund a new project, but reluctant to cut dividends or to make a rights issue, which leads to the decision of borrowing options. The issue with regards to shareholder objectives being met by the management in making financing decisions has come to become a major issue of recent times. This relates to understanding the concept of the agency problem. It deals with the separation of ownership and control of an organisation within a financial context. The financial manager can raise long-term funds internally, from the company’s cash flow, or externally, via the capital market, the market for funds
In addition to accountants providing many useful numbers that signal a company’s performance, they also prepare many useful documents and a code of ethics to make sure that all stakeholders have a clear picture on the business’s financial position. For instance, journaling is what accountants do after every transaction. These entries of what is exchanged in a business provide evidence that money deserves to be in a certain account. Especially since every journal entry needs a corresponding document that proves the record did happen, journals can be used by executives to see what really occurred in case a number in an account looks wrong (Schneider). It is also used when a government official suspects that the company is unfairly representing itself to either indict the business or prove its innocence. Journaling illustrates the importance of accounting since everything is documented and has proof for existence in the case of errors. One thing that journals go hand-in-hand with is the general ledger. This is the document that actually lists each individual account and the amount in it. It organizes the overall picture of every entity a business comes in contact with so that every important number can be put neatly into a financial statement.
Brenda Franklin had been serving Allied Tech for the past 8 years. As any other organisations, Brenda used to be a part of the lunch hour conversations with her colleagues. One day when her colleagues were discussing about corruption and politics, something occurred to her. As a result she prepared a list called “Ethically Dubious Conduct” and pasted it on the common notice board. Her colleagues were taken by surprise. Brenda was now anticipating the next lunch where she was expecting her list to be analysed among her colleagues.
Reforms have been created to close the gap of corporate governance and financial reporting in order to prevent the reoccurrence of corporate scandals. Congress created a federal bill named the Sarbanes-Oxley (SOX) Act in July 2002 in response to the Enron and WorldCom scandals that introduced major changes to the regulation of corporate governance and financial practice in order to protect the interest of investors and the public (“Sarbanes-Oxley Act Summary and Introduction,” 2003). The Act is extensive in corporate governance, which is a comprehensive theory concerned with the alignment of management and shareholders interest. The sections of the bill cover responsibilities of a public corporation’s board of directors, adds criminal penalties for certain misconduct, and requires the SEC to create regulations to define how public corporations are to comply with the law (Slater, 2002). The SEC has issued more than twenty rules implementing provisions of the Act pertaining to corporate governance, financial reporting, and audit functions. The SEC has worked with NYSE and NASDAQ to harmonize the new Corporate Governance Rules. Throughout the rest of this paper, the more detailed listing requirements of the NYSE and NASDAQ will be discussed. Since the reforms are extensive, these were selected for the discussion: the increased role of independent directors, independent audit committee, independent directors on the nominating/corporate governance committee, the