University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

489

Pages:

2
Author:

bratrochanter

The 1934 Securities Exchange Act mandates continuous disclosure requirements for companies with publicly traded securities, ensuring investors have access to information for informed decisions. Issuers must file annual (10-K), quarterly (10Q), and current (8-K) reports to disclose financial conditions, significant events, and other material information. They can transmit reports digitally, often through the SEC’s EDGAR database, improving investor access and lowering issuer costs. Suspension of Reporting Duties An issuer’s duty to file reports can be suspended if its securities class has fewer than 300 holders or fewer than 500 holders if assets are under $10 million. However, securities listed on a national exchange are generally exempt from these suspensions. Insider Trading and Reporting under Section 16 Section 16 of the 1934 Act limits insider trading to enhance market integrity. Statutory insiders—company officers, directors, and large shareholders (over 10%) —must disclose holdings and trades within specified timeframes. Insiders are prohibited from profiting from "short-swing" trades, or trades executed within six months, regardless of intent or information accessed. Proxy Regulations and Shareholder Rights In public corporations, proxy voting is essential for shareholder participation in meetings and decision-making. The 1934 Act mandates that issuers provide adequate proxy information, which includes director nominees’ qualifications and compensation details. Rule 14a-8 allows shareholders with at least 1% or $2,000 in shares to include proposals in proxy materials. However, management may exclude proposals that concern ordinary business matters, are economically insignificant, or contravene state or federal law. Sarbanes–Oxley Act of 2002 (SOX) Following corporate scandals (e.g., Enron, WorldCom), SOX was enacted to improve financial integrity and investor confidence. Key SOX requirements include: 1. Enhanced Disclosure: Public companies must report off-balance-sheet arrangements. 2. Audit Independence: Auditors cannot provide consulting services to audit clients. 3. Executive Accountability: CEOs and CFOs must certify financial statements' accuracy and may forfeit bonuses if statements are restated due to misconduct. 4. Prohibition on Insider Loans: Companies are barred from making loans to executives. 5. Internal Controls (Section 404): Companies must maintain effective financial controls, adding significant compliance costs but reportedly improving investor confidence and financial accuracy. Liability Provisions of the 1934 Act The Act also includes:   Section 18: Liability for false or misleading statements in documents filed with the SEC, covering issuers if investors can prove reliance on incorrect information, though issuers can claim good-faith defense. Section 10(b) and Rule 10b-5: This broad anti-fraud rule covers all securities transactions, prohibiting fraud or deceit and requiring proof of scienter (intent to defraud) and a material misstatement or omission. This applies to both registered and non-registered securities. These regulations seek to foster transparency, hold insiders accountable, and curb fraudulent practices to safeguard public trust in the financial markets.