CPA Regulation (REG) : Federal Securities Regulations

Study concepts, example questions & explanations for CPA Regulation (REG)

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Example Questions

Example Question #7 : Business Law General

The registration requirements of the Securities Act of 1933 are intended to provide information to the SEC to enable it to:

Possible Answers:

Ensure that investors are provided with adequate information on which to base investment decisions.

Assure investors of the accuracy of the facts presented in the financial statements.

Prevent public offerings of securities when management fraud or unethical conduct is suspected.

Evaluate the merits of the securities being offered.

Correct answer:

Ensure that investors are provided with adequate information on which to base investment decisions.

Explanation:

The primary goal of the Securities Act of 1933 is to ensure that investors have sufficient information in order to inform investment decisions; the SEC does not assure the accuracy of the information or assess the financial merits of it.

Example Question #8 : Business Law General

Under the Securities Act of 1933, the registration of an interstate securities offering is:

Possible Answers:

Mandatory, unless the cost to the issuer is prohibitive.

Required, unless there is an applicable exemption.

Intended to prevent the marketing of securities which pose serious financial risks.

Required only in transactions involving more than $500,000.

Correct answer:

Required, unless there is an applicable exemption.

Explanation:

Several securities do not require registration, such as a Certificate of Deposit, securities issued by a governmental or non-profit organization, insurance policies, or short-term commercial paper (with a maturity of less than nine months). Issuer cost, riskiness, and dollar amounts are irrelevant with respect to the registration requirement.

Example Question #9 : Business Law General

Under the liability provisions of Section 18 of the Securities Exchange Act of 1934, for which of the following actions would an accountant generally be liable?

Possible Answers:

Negligently filing a reporting corporation’s tax return with the IRS.

Negligently approving a reporting corporation’s incorrect internal financial forecasts.

Intentionally preparing and filing with the SEC a reporting corporation’s incorrect quarterly report.

Intentionally failing to notify a reporting corporation’s audit committee of defects in the verification of accounts receivable.

Correct answer:

Intentionally preparing and filing with the SEC a reporting corporation’s incorrect quarterly report.

Explanation:

Section 18 of the 1934 Act addresses only intentionally false or misleading representations in a registration statement.

Example Question #10 : Business Law General

An accuracy related penalty applies to the portion of tax underpayment attributable to A) Negligence or a disregard of the tax rules or regulations B) Any substantial understatement of income tax:

Possible Answers:

Neither

Both

A

B

Correct answer:

Both

Explanation:

Accuracy-related penalties apply to the portion of tax underpayments attributable to negligence or disregard of tax rules and regulation as well as to any substantial understatement of income tax.

Example Question #1 : Federal Securities Regulations

In evaluating the hierarchy of authority in tax law, which of the following carries the greatest authoritative value for tax planning of transactions?

Possible Answers:

IRS agents’ reports

IRS regulations

IRC

Tax court decisions

Correct answer:

IRC

Explanation:

The IRC holds the most value as an authoritative source in tax law and for regulations dictated throughout the US tax authority.

Example Question #2 : Federal Securities Regulations

If there was a material omission by an accountant, would he or she be held liable for damages under the Securities Exchange Act of 1934?

Possible Answers:

If the security was part of an original issuance

Only if additionally negligence was proven

Yes

Yes, only if it involved registered securities

Correct answer:

Yes

Explanation:

A plaintiff must prove that the accountant simply made a false statement or omitted a fact under section 10(b).

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