Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

What action is required if an independent accountant is fired or resigns?

1. Notify the bank

2. Notify the SEC and FINRA

3. File a report with the state

4. Change accounting software

The correct answer is: Notify the SEC and FINRA

When an independent accountant is fired or resigns, it is necessary to notify the SEC and FINRA. This requirement is in place to maintain transparency and ensure that any significant changes in financial reporting and auditing processes are communicated to the relevant regulatory authorities. The rationale for informing the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority) stems from the importance of accountability and regulatory oversight in the financial industry. These organizations oversee public companies and securities firms to protect investors and the integrity of the markets. When an independent accountant is no longer involved, the potential implications on the company's financial reporting and governance must be monitored closely to prevent any misrepresentation or irregularities. The other options do not align with regulatory requirements. Although notifying a bank may be relevant in certain contexts, it is not mandated when an independent accountant is terminated or resigns. Filing a report with the state may be necessary in specific circumstances, but it is not a universal requirement for all companies. Changing accounting software is an operational decision that does not specifically relate to the accountant's departure and isn't mandated by any regulations. Therefore, the obligation to inform the SEC and FINRA is the most appropriate and essential action following the change in an accountant’s status.