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The Uncharted Territory
Transcript of The Uncharted Territory
Government Regulation of Business
Sarbanes-Oxley Act (SOX)
Major provisions of SOX:
problems are reported to the Board of Directors
accounting firms can't both audit and consult
avoid conflicts of interest
rotation of auditors
2 sets of rules accountants must follow: GAAP and GAAS
executive officer has to certify the financial records (302)
section 401 amends the 1934 securities act and it deals with disclosure in periodic reports
Accountants Liability to clients
As a direct result of the stock market crash/Great Depression, congress passed 2 main pieces of legislation that regulated the issuance of new securities (1933 Act) and that regulated companies with publicly traded securities (1934 Act)
(1) Securities Act of 1933
section 11- before securities can be offered to the public, they have to be registered with the SEC and have audited financial statements. Auditors are liable for any material misstatement or omission in the financial statement they prepare
IPO vs DPO
Sale of Restricted Securities
Liability under the 1933 Act
(2) Securities Exchange Act of 1934
established the SEC
an annual report must be filed with the SEC and auditors are liable for any inaccurate disclosure
shareholders must get an annual report as well
Liability under the 1934 act
Unfair and deceptive sale acts and practices
ads- does it contain important misrepresentations or missions that will likely mislead a reasonable consumer
unfair practices (causes substantial consumer injury, harm outweighs benefit, consumer could not reasonable avoid the injury) or violates public policy
abusive acts (acts that harm the public)
FTC prohibits bait and switch
FTC regulates merchandise bought by mail, telephone, or online
telemarketing (do not call list, unfair phone practices)
treat unordered merchandise as a gift
Equal Credit opportunity act
Clean Water Act
The Clean Water Act passed in 1972 had two main goals:
(1) To make all navigable water suitable for swimming and fishing by 1983.
To (2) eliminate the discharge of pollutants into navigable water by 1985.
The CWA prohibits any single producer from discharging pollution into water without a permit from the EPA.
Before granting a permit, the EPA must set limits, based on the best available technology, for each pollutant which may be discharged.
National Water Quality Standards
The CWA requires states to set EPA-approved water quality standards and develop plans to achieve them.
Each state has to develop plans to achieve these EPA standards
The CWA prohibits discharge of fill material into wetlands
Under the CWA, a municipality must obtain a permit for any discharge
from a wastewater treatment plant
to meet the terms of the K accurately and meet deadlines on time.
accountants are liable to clients in negligence if they breach a duty (don't follow GAAP or GAAS); remember reasonableness standard; AND if their breach of duty caused harm
common law fraud (review previous lessons)
breach of trust
Accountants liability to 3rd parties
accountants liability to 3rd parties is greater than most professionals.
Negligence, states follow one of three doctrines:
Liability for Qualified Opinions
Accountants Criminal Liability
While most accountant liability is civil, some are criminal:
DOJ can prosecute willful violations of the 1933 or 1934 act
violations of the IRS code in tax preparation
violations of certain state securities laws
What is a security?
An financial instrument that represents some type of financial value; any transaction where the buyer invests money in a common enterprise and expects to earn a profit mainly from the works of others. Most commonly: stocks, bonds, options (passive).
Other Security Issues
short swing (section 16)
classic insider trading
Blue Sky laws- state security statutes
The EPA regulates environmental issues. Two big laws to know: The Clean Air Act and the Clean Water Act
Clean Air Act
Primary Standards – national ambient air quality standards for pollution that harms public health. Upheld, regardless of cost.
Secondary Standards – standards set for less harmful, but unpleasant pollution. State Implementation Plans (SIPs) – the EPA can produce its own plan of pollution reduction if a state’s plan is not implemented in a reasonable time.
Regulation of Stationary Sources – the EPA sets limits on pollution produced by buildings and requires permits for all buildings that emit certain pollution levels.
States can't let air quality decline
sets standard for pollution from from cars and other emission and pollution standards
allows citizens to bring suit against a polluter or the EPA
deal with initial registration and setup of the stock
deals the registration of the stock itself
focuses on the 1 time disclosure
deals with what happens to the stock after it's been set up (the trading between investors)
deals with the registration of the company
deals with the requirements of ongoing, regular disclosure
established the SEC
oversees exchanges (entities set up to allow investors to trade with one another; NYSE)