CIRO Financial Reporting & Disclosure 2 — Questions and Answers
Question 1: Under SEC Regulation FD, which of the following disclosures would NOT trigger an obligation to make public disclosure?
- Sharing material non-public information with a buy-side analyst
- Disclosing information to a credit rating agency in connection with a credit rating (Correct answer)
- Telling a hedge fund manager about an unannounced acquisition
- Sharing quarterly guidance exclusively with institutional investors
Correct answer: Disclosing information to a credit rating agency in connection with a credit rating
Regulation FD includes an exemption for disclosures made to credit rating agencies, provided the information is used solely for the purpose of developing a credit rating.
Question 2: A company discovers a material error in its previously filed 10-K. What filing must it submit to correct the error?
- 10-K/A (Correct answer)
- 8-K
- NT 10-K
- 10-KSB
Correct answer: 10-K/A
A 10-K/A is an amended annual report filed with the SEC to correct material errors or restate financial information from a previously filed 10-K.
Question 3: Which earnings per share figure must always be disclosed on the face of the income statement for a public company with a complex capital structure?
- Basic EPS only
- Diluted EPS only
- Both basic and diluted EPS (Correct answer)
- Pro forma EPS
Correct answer: Both basic and diluted EPS
ASC 260 requires companies with complex capital structures (those with dilutive potential common shares) to present both basic and diluted EPS on the face of the income statement.
Question 4: What is the primary purpose of MD&A (Management's Discussion and Analysis) in an annual report?
- To provide audited financial statements in narrative form
- To give management's perspective on the company's financial condition and results of operations (Correct answer)
- To list all risk factors facing the company
- To disclose executive compensation details
Correct answer: To give management's perspective on the company's financial condition and results of operations
MD&A is designed to allow management to explain the financial statements from their viewpoint, discussing trends, liquidity, capital resources, and known uncertainties.
Question 5: A company executes a 2-for-1 stock split. How should this event be reflected in the comparative EPS data presented in the current year's annual report?
- Only the current year EPS should be adjusted
- Prior year EPS should be restated to reflect the split retroactively (Correct answer)
- A footnote disclosure is sufficient with no restatement required
- Both years should show pre-split and post-split EPS side by side
Correct answer: Prior year EPS should be restated to reflect the split retroactively
Stock splits require retroactive restatement of all prior period EPS figures presented so that all periods are comparable on a post-split basis.
Question 6: Which of the following is a key disclosure requirement under ASC 606 (Revenue from Contracts with Customers)?
- Disaggregation of revenue by product line or geography (Correct answer)
- Disclosure of all customer names and contract amounts
- Quarterly revenue forecasts for the next two years
- Gross margin by individual product SKU
Correct answer: Disaggregation of revenue by product line or geography
ASC 606 requires companies to disaggregate revenue into categories that depict how the nature, amount, timing, and uncertainty of revenue are affected by economic factors.
Question 7: When must a company file a Form 8-K to report a change in its certifying accountant?
- Within 4 business days of the triggering event (Correct answer)
- Within 15 calendar days of the triggering event
- In the next quarterly report (10-Q)
- Only if the change was involuntary
Correct answer: Within 4 business days of the triggering event
SEC rules require a Form 8-K to be filed within four business days of any triggering event, including changes in the company's independent registered public accounting firm.
CIRO Financial Reporting & Disclosure 2
Under SEC Regulation FD, which of the following disclosures would NOT trigger an obligation to make public disclosure?