The Securities and Exchange Commission (SEC) has encouraged managements of public companies to disclose more information in the shareholders’ annual report. As a consequence, a significant amount of the information required in the SEC’s Form 10-K now appears in published annual reports. At the same time, the SEC has made the annual financial reporting process simpler and more efficient by approving an integrated disclosure system.

Required
1. Identify the major classes of information that must be included in both the annual report to shareholders and Form 10-K filed with the SEC.
2. The integrated disclosure system is intended to simplify the annual reporting process with the SEC by expanding the ability to incorporate by reference.
a. Define what is meant by incorporating by reference and identify the documents that are involved when incorporating by reference.
b. Explain how the integrated disclosure system reduces managements’ efforts in filing annual reports with the SEC.
c. Explain the SEC’s principal reasons for making the changes in the annual reporting process.
d. Identify and explain potential problems the integrated disclosure system could have on the annual reporting process from the aspect of users of financial information.