GLOSSARY OF TERMS

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Accounting estimates: Those terms contained within financial statements that cannot be measured

precisely and which can only be estimated. Accounting estimates are financial accounting terms of art

and are items based on the judgment and specialized knowledge of professionals applying past

experience. Accounting estimates are problematic when the range of uncertainty involved in their

preparation approaches a material level.

Active business investment: In the context of U.S. income taxation of non-U.S. persons, an active

business investment is U.S. source income that is effectively connected with a U.S. trade or business.

Active conduct of a trade or business: Within the context of Internal Revenue Code §355, a corporation

is treated as engaged in the active conduct of a trade or business if it is itself engaged in the active

conduct of a trade or business, or if substantially all of its assets consist of the stock, or stock and

securities, of a corporation or corporations controlled by it, immediately after the distribution, each of

which is engaged in the active conduct of a trade or business.

Active trade or business (ATB): Any activity carried on for the production of income from selling goods

or performing services.

Anti-Abuse Rule (of the Proposed Regulations under §385): The Proposed Regulations under §385

establish an anti-abuse rule, whereby a debt instrument may be treated as equity if it was issued with

the primary purpose of avoiding the application of the Proposed Regulations.

Applicable instrument: Within the context of the Proposed and Final Regulations issued under IRC

§385, an applicable instrument is any instrument issued or deemed issued that is in the form of a debt

instrument.

ASC: The Financial Standards Codification. The ASC is the source of authoritative generally

accepted accounting principles (GAAP) in the U.S., as issued by the FASB, and applied to

nongovernmental entities. The ASC has been effective for interim and annual periods ending after

September 15, 2009.

ASC 450: ASC 450, Contingencies, outlines the accounting and disclosure requirements for loss and gain

contingencies. An estimated loss from a loss contingency is recognized only if the available information

indicates that: (i) it is probable that an asset has been impaired or a liability has been incurred at the

reporting date, and (ii) the amount of the loss can be reasonably estimated. Loss contingencies that do

not meet both criteria for recognition still may need to be disclosed in the financial statements. Gain

contingencies usually are not be reflected in the financial statements because to do so might be to

recognize revenue before its realization. The ASC also provides certain industry-specific contingency

guidance, but such guidance is included in the industry sections of the Codification.

Association of Audit Committee Members, Inc. (AACMI): The AACMI is a non-profit association of audit

committee members that is dedicated to strengthening audit committees through the development of a

national system of practices and procedures, including a robust whistleblower system.

Audit committee: An audit committee is the operating committee of the board of directors of a

company responsible for the oversight of financial reporting and disclosure. The responsibilities of an

audit committee typically include monitoring the choice of accounting policies, overseeing external

auditors, monitoring internal control processes, and overseeing the internal audit function.

GLOSSARY OF TERMS

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Audit committee dialogue: An audit committee dialogue is a PCAOB outreach and engagement method

designed to provide audit committees at publicly-traded companies with PCAOB insight as to recurring

audit concerns and emerging audit risks that have been identified during the inspection process.

Audit committee disclosure: In the context of SEC regulation, audit committee disclosure relates to the

rules requiring public companies' independent auditors to review company financial information prior to

the filing of quarterly reports on Form 10-Q or Form 10-QSB with the SEC, and requiring public

companies to include in their proxy statements certain disclosures about their audit committees and

reports from their audit committees containing certain disclosures. The rules are designed to improve

disclosure related to the functioning of corporate audit committees and to enhance the reliability and

credibility of financial statements of public companies.

Audit firm inspection: The inspection of registered public accounting firms carried out by the PCAOB to

assess compliance with the Sarbanes-Oxley Act, PCAOB rules, SEC regulations, and professional

standards relating to the audits performed by the firm, the audit reports issued by the firm, and other

audit-related matters involving U.S. companies, and other issuers, brokers, and dealers.

Audit inspection report: As issued by the PCAOB, an audit inspection report is designed to provide

information to audit committee members detailing those audit quality-control deficiencies discovered

during the PCAOB inspection process.

Audit opinion: An opinion expressed by a company’s independent auditor which has examined an

entity’s financial statements. The audit opinion accompanies the organization’s financial statements,

expressing the auditors’ opinion as to whether those financial statements are fairly presented in

accordance with GAAP in the U.S., including the adequacy of the information disclosed. Audit opinions

may be of three major types: unqualified, qualified, or adverse.

Audit quality indicators: As defined by a July 1, 2015 PCAOB concept release, audit quality indicators

are a potential portfolio of quantitative measures that may provide new insights about how to evaluate

the quality of audits and how high-quality audits are achieved. Taken together with qualitative context,

the indicators may inform discussions among those concerned with the financial reporting and auditing

process, for example among audit committees and audit firms.

Audit Standard No. 16: As promulgated by the PCAOB, this standard requires the auditor to

communicate with the company's audit committee regarding certain matters related to the conduct of

an audit and to obtain certain information from the audit committee relevant to the audit. This

standard also requires the auditor to establish an understanding of the terms of the audit engagement

with the audit committee and to record that understanding in an engagement letter.

Auditor: An official, external, independent and/or an internal financial professional employed by a

company, charged with auditing or reviewing the financial statements of a corporation or other business

entity. Independent auditors are responsible for obtaining reasonable assurances that an organization’s

financial statements are free of material misstatement and adhere to GAAP.

Base Erosion and Profit Shifting (BEPS): BEPS is a tax avoidance strategy used by multinational

corporations wherein profits are shifted from jurisdictions that have high corporate tax rates to

jurisdictions that have lower corporate tax rates.

GLOSSARY OF TERMS

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Bifurcation Rule (of the Proposed Regulations under §385): Under the Bifurcation Rule established by

the Proposed Regulations under §385, the Internal Revenue Service (IRS) may treat an instrument as

part debt and party equity based on an analysis of general federal tax principles.

Branch profits tax: As provided by the Internal Revenue Code (IRC), the branch profits tax treats a U.S.

branch of a foreign corporation as if it were a U.S. subsidiary of a foreign corporation for purposes of

taxing profit repatriations.

Bulk sale: Also known as a bulk transfer, a bulk sale occurs when a business sells its entire inventory, or

almost all, to a single buyer and that sale is not considered part of the seller’s ordinary course of

business.

Business assets: Property or equipment purchased exclusively or primarily for business use.

Business combination: A business combination is a transaction in which an acquiring business takes

control of another business. Accounting for business combinations is subject to specific professional

standards and practices with respect to financial accounting and reporting requirements, including

application of the acquisition method of accounting.

Business income: Business income is any income that is earned as a result of business activity and is

comprised of all income arising from transactions in the ordinary course of business or trade. Business

income is treated as ordinary income for tax purposes.

Center for Capital Markets Competitiveness (CCMC): The CCMC is the organization within the U.S.

Chamber of Commerce that advocates on behalf of U.S. businesses in order to ensure the nation’s global

leadership in capital formation. The CCMC advocates in favor of legislation and regulation that

strengthen capital markets, allowing businesses to mitigate risks, manage liquidity, access credit, and

raise capital. The CCMC’s mission focuses on systematic risk and growth, corporate governance,

investor protection and opportunity, consumer credit and choice, and financial reporting.

Combined filing: Pursuant to this system of filing state income taxes, a multistate corporation with

subsidiaries located in multiple states must add together the profits of all of its subsidiaries, regardless

of location, into one tax return.

Comfort letter: A document prepared by auditors, usually by an independent accounting firm, assuring

underwriters and others involved in the public offering of a company’s securities that the auditors have

found no false or misleading statements within the financial statements they have audited.

Commerce Clause: The Commerce Clause of the U.S. Constitution (Article 1, Section 8, Clause 3)

authorizes Congress to regulate commerce with foreign nations and among the various U.S. states. The

Commerce Clause, in conjunction with the Due Process Clause, is viewed as the constitutional authority

permitting the imposition of state and local taxes.

Consultation paper: As issued by the PCAOB, a staff consultation paper is an attempt by the PCAOB’s

Standing Advisory Group (SAG) to solicit input and information from audit committee members and

others with respect to a problematic area of practice so as to help inform PCAOB staff members before

they recommend a proposed response to the issue of concern.

GLOSSARY OF TERMS

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Continuing ownership: As it relates to inversion transactions, continuing ownership is the level of

continued control, or ownership, retained by U.S. stockholders in the acquiring foreign company after

the acquisition of a U.S. company. Under §7874, if the level of continuing control by U.S. stockholders is

at least 80%, the foreign company will be treated as a domestic U.S. company for taxation purposes.

Control: As defined by Internal Revenue Code §368(c), controls means the ownership of stock

possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at

least 80% of the total number of shares of all other classes of stock of the corporation.

Controlled partnership: Within the context of the Proposed and Final Regulations issued under IRC

§385, a controlled partnership is a partnership in which 80% or more of the capital or profit interests are

owned, directly or indirectly, by one or more members of the expanded group.

Cooling-off period: In the context of a public securities offering, it is the period of time in which the SEC

may delay the effectiveness of an initial public offering’s registration in order to allow the effects of

publicity to dissipate.

Corporate business purpose: Within the context of Internal Revenue Code §355 tax-free distributions, a

corporate business purpose is a real and substantial purpose relevant to the business of the corporation.

Cost-of-performance analysis: Within the context of state income-tax apportionment, under the cost-

of-performance analysis, the sales from services are sourced to a state when: (1) the income-producing

activity is performed in such state; or (2) the income-producing activity is performed both within and

outside such state and a greater proportion of the income-producing activity is performed in such state

than in any other state, based on the cost-of-performance.

Covered debt instrument: Within the context of the Proposed and Final Regulations issued under IRC

§385, a covered debt instrument is any debt instrument issued after April 4, 2016 that is issued by a

covered member and is not a qualified debt instrument, an excluded statutory or regulatory debt

instrument, or issued by a regulated financial company or regulated insurance company.

Covered member: Within the context of the Proposed and Final Regulations issued under IRC §385, a

covered member is a domestic corporation that is a member of an expanded group.

Cross-border activities: Activities that cross national borders. International taxation is an example of

cross-border activity.

Device: Within the context of Internal Revenue Code §355 tax-free distributions, a device is a set of

facts that exists that cause a transaction to be deemed used principally to distribute the earnings and

profits of the distributing corporation, the controlled corporation, or both.

Disclosure framework project: As added to the FASB’s technical agenda in 2009, the goal of the

disclosure framework is the establishment of an overarching framework intended to make financial

statement disclosures more effective and coordinated, and less redundant.

Discount for lack of control: The amount deducted from the pro rata share value of an equity interest

in a business to offset the lack of some or all of the powers of control over that business.

GLOSSARY OF TERMS

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Discount for lack of marketability: The amount deducted from the pro rata share value of an equity

interest in a business to offset the lack of some or all of the ability to quickly convert property to cash at

a minimal cost and with a high degree of certainty that the anticipated proceeds will be realized.

Documentation requirements (of the Proposed Regulations under §385): As prescribed by the

Proposed Regulations under §385, the documentation requirements set forth the nature of

documentation and information that must be prepared and maintained for a purported debt instrument

issued by a corporation to a related party to be treated as indebtedness for federal tax purposes. In

general, the Treasury Department and the IRS have determined that timely preparation of

documentation and financial analysis evidencing four essential characteristics of indebtedness are a

necessary factor in the characterization of a covered interest as indebtedness for federal tax purposes.

Those characteristics are: a legally binding obligation to pay, creditors’ rights to enforce the obligation, a

reasonable expectation of repayment at the time the interest is created, and an ongoing relationship

during the life of the interest consistent with arms-length relationships between unrelated debtors and

creditors.

Domestic income: Revenue derived from sources within a particular nation.

Domicile: The state in which a person has his permanent residence or intends to make his residence, as

contrasted with the place where the person is living on a temporary basis. A person’s state of domicile

is dependent upon his intent, the location of a home in which he regularly sleeps, and some course of

conduct within that state.

DRS: A draft registration statement. Pursuant to the JOBS Act, an emerging growth company may

submit a draft registration statement for confidential, nonpublic review by the SEC prior to public filing

provided that certain other conditions are met.

Due diligence: The investigation process undertaken so as to afford underwriters and others involved in

a public offering of securities a legally-protective prospectus and registration statement. Due diligence

requires underwriters to conduct a reasonable investigation, with respect to those statements not made

on the authority of an expert regarding a company’s business, legal, and financial affairs, so as to allow

underwriters to form a basis for believing that the statements contained within the prospectus and

registration statement are true and that no material facts have been omitted. Issuers of securities are

not permitted a due diligence defense.

Due Process Clause: The Fifth and Fourteenth Amendments to the U.S. Constitution each contain a due

process clause. Due process relates to the administration of justice, thus, the clause acts as a safeguard

from the arbitrary denial of life, liberty, or property by the federal and state governments outside the

sanction of law. The U.S. Supreme Court interprets the clauses more broadly because these clauses

provide certain protections, including procedural due process (in civil and criminal

proceedings), substantive due process, a prohibition against vague laws, and as the means by which the

Bill of Rights are incorporated. Due process ensures the rights and equality of all citizens.

GLOSSARY OF TERMS

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Economic presence: Within the context of nexus and state income taxation, economic presence nexus

is generally based on a business’s economic activity within a state, or on the income derived from sales

to customers within the state. A number of states have adopted an economic presence standard, based

on certain factors (e.g., in-state property ownership, in-state payroll expenses, and in-state sales), to

determine whether a business has an in-state economic presence.

EDGAR: The Electronic Data Gathering, Analysis, and Retrieval system. EDGAR is the automated system

by which companies and others required by law to file information with the SEC forward their

submissions. EDGAR also collects, validates, and performs other functions with respect to submissions

made through the system on behalf of the SEC staff.

EGC: An emerging growth company. An EGC is generally a company that conducts its first public equity

offering after December 8, 2011 and had annual gross revenue of less than $1 billion during its most

recent fiscal year.

EITF: The Emerging Issues Task Force. The EITF was formed in 1984 in response to the

recommendations of the FASB’s task force on timely financial reporting guidance. The mission of the

EITF was to assist the FASB in improving financial reporting through a timely identification, discussion,

and resolution of financial accounting issues. The EITF was designed to promote implementation

guidance of GAAP issued by the FASB to reduce diversity in practice on a timely basis and to minimize

the need for the FASB to spend time and effort addressing narrow implementation, application, or other

emerging issues with respect to existing GAAP.

Entity-level controls: Internal controls that help to ensure that management’s directives relating to a

business organization, or entity, are carried out. Entity-level controls are subject to government

regulation, including the Sarbanes-Oxley Act of 2002, the PCAOB, and Auditing Standard No. 5.

Entity’s Decision Process: Within the context of the FASB’s disclosure framework project, the Entity’s

Decision Process is one of two components that comprise the disclosure framework project. The

Board’s Decision Process is the second component. The Entity’s Decision Process is intended to

promote the use of discretion by reporting entities when evaluating the requirements as set forth by the

FASB.

Enterprise risk management (ERM): ERM is the process and methods used by business organizations to

manage risks related to the achievement of their business objectives. ERM provides a framework for

risk management and involves the planning, organizing, managing, and control of the activities of an

organization so as to minimize the effects of risk on capital and earnings.

Equitable apportionment: Within the context of state income taxation, equitable apportionment allows

for the use of an alternative method of apportioning income if a state’s allocation and apportionment

statutes do no accurately represent the extent of a taxpayer’s business activity with the state. Equitable

apportionment is available to both taxpayer and the state.

Expanded group: Within the context of the Proposed Regulations under §385, applicable to debt

instruments issued to a member of a debtor’s expanded group, the term “expanded group” means an

affiliated group as defined by §1504(a) of the Internal Revenue Code, but modified to include any of the

corporations listed in the exceptions in §1504(b) of the IRC and corporations owned “indirectly.”

Additionally, the 80% of vote and value test in §1504(a) is modified to an 80% vote or value test.

GLOSSARY OF TERMS

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Expanded group instrument: Within the context of the Proposed and Final Regulations issued under

IRC §385, an expanded group instrument is an applicable instrument the issuer of which is one member

of an expanded group and the holder of which is another member of the same expanded group, a

disregarded entity owned by a member of the same expanded group, or a controlled partnership with

respect to the same expanded group.

Expatriated entity: Within the context of the Temporary Regulations under §7874, an expatriated entity

is as any domestic corporation or domestic partnership substantially all of the properties of which have

been acquired (directly or indirectly) by a “surrogate foreign corporation.”

External Auditor Assessment Tool: As developed by the AACMI, the tool is designed to assess the

qualifications and performance of the auditor; the quality and candor of the auditor’s communications

with the audit committee and the company; and the auditor’s independence, objectivity, and

professional skepticism. The assessment questionnaire included within the tool can be used by audit

committees to perform their evaluation of the audit, the audit team, as well as the lead audit

engagement partner, audit firm, and engagement quality reviewer. However, the assessment tool is not

meant to provide a summary of the legal or regulatory requirements for audit committees or

independent auditors.

Fair apportionment: Fair Apportionment is a factor in tax law, described in the Commerce Clause,

affording the federal government the power to intercede in tax issues on an intrastate and interstate

level. In the U.S. Supreme Court’s decision in Complete Auto Transit v. Brady, it was determined that fair

apportionment requires that taxation must be equally divided between states that are involved in

interstate commerce.

Fair market value: The price at which property would change hands between a willing buyer and a

willing seller, neither being under any compulsion to buy or to sell and both having reasonable

knowledge of relevant facts. The fair market value of a particular item of property includible in the

decedent’s gross estate is not to be determined by a forced sales price. Nor is the fair market value of

an item of property to be determined by the sale price of the item in a market other than that in which

such item is most commonly sold to the public, taking into account the location of the item wherever

appropriate. Thus, in the case of an item of property includible in the decedent’s gross estate, which is

generally obtained by the public in the retail market, the fair market value of such an item of property is

the price at which the item or a comparable item would be sold at retail.

Fair value measurement: A fair value measurement is used to provide the accounting value of an asset

or liability for which the market price cannot be determined. According to GAAP, fair value is the price

that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants on the measurement date. Fair value measurements are often used in accounting

estimates.

Family: In the context of Internal Revenue Code §2704, regarding the treatment of certain lapsing rights

and restrictions, family is defined to include the spouse, ancestors, and lineal descendants of the right

holder, or transferor, their spouses, and the transferor’s siblings and their spouses.

GLOSSARY OF TERMS

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Family-controlled entity (FEC): In the context of Internal Revenue Code §2704, regarding the treatment

of certain lapsing rights and restrictions, a family-controlled entity is a business entity, typically a

corporation or partnership, owned 50% or more by a family.

FAS 5: Statement of Financial Accounting Standard No. 5 (Accounting for Contingencies (FAS 5)). FAS 5

is the original FASB pronouncement and principal source of guidance on accounting for impairment in a

loan portfolio under GAAP. More specifically, it provides guidance on loss estimates for groups, or pools,

of non-impaired and/or homogeneous loans grouped together based on similar risk characteristics. The

loans within the pools are evaluated collectively considering both quantitative (historical losses) and

qualitative (environmental adjustment) measures, in order to determine appropriate loan and lease loss

reserve levels.

FASB: The Financial Accounting Standards Board. An independent board of accounting professionals,

the FASB sets U.S. standards of financial accounting and reporting known as generally accepted

accounting principles (GAAP). FASB has been designated by the SEC as the organization responsible for

setting accounting standards for public companies.

Financial instruments standard: Within the context of FASB guidance, the new financial instruments

standard is intended to provide users of financial statements with more useful information on the

recognition, measurement, presentation, and disclosure of financial instruments. The new standard

makes specific improvements to existing GAAP by requiring equity investments (except those specified)

to be measured at fair value with changes in fair value recognized in net income; requiring public

companies to use the exit price notion when measuring the fair value of financial instruments for

disclosure purposes; requiring separate presentation of financial assets and financial liabilities by

measurement category and form of financial asset on the balance sheet or the accompanying notes to

the financial statements; eliminating the requirement to disclose the fair value of financial instruments

measured at amortized costs for organizations that are not public business entities; eliminating the

requirement for public business entities to disclose the method(s) and significant assumptions used to

estimate the fair value that is required to be disclosed for financial instruments measured at amortized

costs on the balance sheet; and requiring a reporting organization to present separately in other

comprehensive income the portion of the total change in the fair value of a liability resulting from a

change in the instrument-specific credit risk when the organization has elected to measure the liability

at fair value in accordance with the fair value option for financial instruments. The new financial

instruments standard will take effect for public companies for fiscal years beginning after December 15,

2017, including interim periods within those fiscal years. For private companies, not-for-profit

organizations, and employee benefit plans, the standard becomes effective for fiscal years beginning

after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019.

Financial statement: The typical set of financial statements include a balance sheet, an income

statement, statements of cash flows, and any additional notes that might be required.

FINRA: The Financial Industry Regulatory Authority. FINRA is an independent, private organization that

serves as a self-regulatory body responsible for overseeing securities transactions of member brokerage

firms and exchanges. FINRA’s oversight of member securities firms is designed to protect investors by

ensuring that the securities industry operates fairly and honestly. FINRA is responsible for governing

business between brokers, dealers, and the investing public.

GLOSSARY OF TERMS

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Firm shares: The securities that comprise an issuer’s public offering. Firm shares are purchased from

the issuing company by underwriters, at a specified price, and then resold to the public.

Five-Year-Active-Business Percentage: The percentage determined by dividing the fair market value of

a corporation’s Five-Year-Active Business Assets by the fair market value of its total assets.

Five-Year-Business-Business Assets: Assets used in the active conduct of a trade or business for five

years that satisfies the requirements of IRC §355(b)(2) and §1.355-3(b). Five-Year-Active-Business Asset

include reasonable amounts of cash and cash equivalents for working capital and assets required to be

held for business exigencies or regulatory purposes.

Flow-through entity: A business entity that passes, or is deemed to pass, income on to its owners and

investors. Flow-through entities are routinely used to limit taxation by avoiding double taxation. The

income of a flow-through entity is treated as the income of its owners and investors and not as the

taxable income of the distributing entity.

Foreign Account Tax Compliance Act (FATCA): The FATCA, passed in 2010, is a U.S. federal law that

requires foreign financial institutions and certain other non-financial foreign entities to report on the

foreign assets owned by U.S. account holders. Failure to comply with FACTA may result in penalties

such as the withholding of withholdable payments to the noncompliant foreign financial institution or

entity.

Foreign source income: Income earned from investments made outside the taxpayer’s country of

domicile.

Foreign tax credit (FTC): An FTC is usually offered by a taxing jurisdiction that taxes its nationals on their

worldwide income in order to mitigate the potential for double taxation.

Full disclosure: In the context of SEC information and reporting mandates for publicly-traded

companies, full disclosure is the SEC’s requirement that publicly-traded companies release and provide

for the free exchange of all material facts relevant to their ongoing business operations.

Funding Rule (of Proposed Regulations under §385): As prescribed by the Proposed Regulations under

§385, the Funding Rule re-characterizes debt as equity if the debt “funded” any of the following

transactions: (i) debt issued in a distribution; (ii) debt issued to acquire stock of an affiliate; or (iii) debt

issued for property in an asset reorganization, solely to the extent the debt is distributed as “boot.”

Free writing prospectus: Written communications with respect to an initial public offering made after

the filing of a registration statement, but before its effectiveness. Typically, a free writing prospectus

contains information about the issuer or the offering that supplements the formal prospectus required

by the SEC.

GAAP: Generally accepted accounting principles in the United States. GAAP are the standard

framework of guidelines for financial accounting in financial statements as established by the Financial

Accounting Standards Board (FASB). GAAP are the common set of accounting procedures, principles,

and standards that businesses use to present their financial statements in accordance with FASB

requirements.

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General Rule (of Proposed Regulations under §385): As prescribed by the Proposed Regulations under

§385, the General Rule re-characterizes as equity debt issued: (i) in a distribution; (ii) to acquire stock of

an affiliate; or (iii) for property in an asset reorganization, solely to the extent the debt is distributed as

“boot.”

Going concern standard: Within the context of FASB guidance, the new going concern standard

requires management to assess a company’s ability to continue as a going concern and to provide

related footnote disclosures in certain circumstances. Disclosures are required when conditions give

rise to substantial doubt. Substantial doubt is deemed to exist when it is probable that the company

will be unable to meet its obligations within one year from the financial statement issuance date.

“Probable” is used similar to its current use in U.S. GAAP for loss contingencies. The new standard

applies to all companies and is effective for the annual period ending after December 15, 2016, and all

annual and interim periods thereafter.

Goodwill: In the context of accounting, goodwill is an intangible asset that arises when a buyer acquires

an existing business. Goodwill includes those assets that are not separately identifiable and is equal to

the excess of the purchase price paid over the total value of the individual other acquired assets and

liabilities assumed.

Goodwill impairment: Goodwill impairment is the difference in the book value of goodwill and the

implied fair value of goodwill. In accounting, when the carrying value of goodwill exceeds its fair value,

goodwill is considered to be impaired.

IAI: An institutional accredited investor. An IAI is an institutional investor that is an accredited investor

under the Securities Act and one that possesses a level of sophistication with respect to knowledge and

experience in financial matters such that it is capable of evaluating and bearing the risks associated with

an investment.

IASB: The International Accounting Standards Board. The IASB is an independent, private-sector body

that develops and approves International Financial Reporting Standards (IFRSs). Formed in 2001, the

IASB operates under the oversight of the IFRS Foundation.

IFRS: International Financial Reporting Standards. IFRS are intended as a common, global business

affairs language allowing for the comprehension and comparison of company financial statements

across national borders. IFRS are the rules to be followed by applicable covered entities. Currently, the

U.S. has not adopted IFRS.

Immaterial fact: In an accounting context, an immaterial fact is information that does not significantly

affect the decisions of different users of that information. In determining whether a fact is immaterial,

accountants must use professional judgment. Although no official quantitative guidelines for

determining materiality have been established, preliminarily, amounts less than 5% are often considered

immaterial.

Income tax: The tax levied by a government directly on income, usually an annual tax on income.

Intent: In the context of accounting and financial statement reporting, intent is sometimes used to

describe the purposeful, motivating factors underlying misstatements and/or omissions, such as

overstatements and understatements of financial statement amounts.

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Internal control: In the context of accounting and auditing, internal control is a process for assuring the

realization of an organization’s objectives with respect to operational efficiency, reliable financial

reporting, and legal and regulatory compliance.

Internal Revenue Code (IRC): The Internal Revenue Code is that part of the federal statutory tax law in

the United States, published in various volumes of the United States Statutes at Large, and separately

as Title 26 of the United States Code (USC). The IRC is organized topically, into subtitles and sections,

covering income, payroll, estate, gift and excise taxes; as well as procedure and administration. Its

implementing agency is the Internal Revenue Service.

IRC §301: The section of the Internal Revenue Code dealing with the effects of distributions of property

made by a corporation to a shareholder with respect to the corporation’s stock.

IRC §302: The section of the Internal Revenue Code dealing with corporate redemption of stock and its

treatment as a distribution in part or full payment in exchange for the stock.

IRC §311: The section of the Internal Revenue Code dealing with the taxability of a corporation on a

distribution by the corporation to its shareholders with respect to the shares of the corporation.

IRC §338(h)(10): Under §338(h)(10) of the Internal Revenue Code, a sale of the stock of a corporate

subsidiary or an S corporation is treated as if the corporation had sold its assets and distributed the sale

proceeds to its shareholders in liquidation. The provision’s purpose is to allow the buyer of a

corporation’s stock to step up the basis of the corporation’s assets to reflect the purchase price, as it

would if it bought the assets directly.

IRC §355: The section of the Internal Revenue Code dealing with the taxability of a corporation on the

distribution of stock and securities of a controlled corporation.

IRC §368: The section of the Internal Revenue Code defining terms related to corporate reorganizations.

IRC §385: The section or the Internal Revenue Code that authorizes the Secretary of the Treasury to

issue regulations "as may be necessary or appropriate to determine whether an interest in a corporation

is to be treated... as stock or indebtedness."

IRC §2704: Enacted in 1990, IRC §2704 was intended to curtail the perceived abuses in valuations for

gift and estate tax purposes by providing special valuation rules for intra-family transfers of interests in

family-controlled corporations and partnerships.

IRC §7874: The section of the Internal Revenue Code containing the rules pertaining to the taxation of

expatriated entities and their foreign parents.

IRC Subpart F: Subpart F, a major U.S. anti-deferral regime, eliminates deferral of U.S. tax on some

categories of foreign income by taxing certain U.S. persons immediately on their share of income earned

by controlled foreign corporations.

Internal Revenue Service (IRS): The Internal Revenue Service is the implementing agency of the Internal

Revenue Code (IRC). The IRS is the revenue service of the U.S. federal government. A bureau of the

Department of Treasury, the IRS is under the immediate direction of the Commissioner of Internal

Revenue. The IRS is responsible for collecting taxes and the administration of the IRC. It has also

overseen various benefit programs, and enforces portions of the Affordable Care Act (ACA).

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Issuer: In the context of publicly-traded companies, an issuer is any legal entity that develops, registers,

and sells securities for the purpose of financing its operations and raising capital. Issuers can include

foreign and domestic corporations.

JOBS Act: The Jumpstart Our Business Startups Act. The JOBS Act, enacted in 2012, was designed to

spur job and economic growth by improving capital-market access for emerging growth companies, and

significantly changed a number of federal securities laws and regulations so as to make it easier for

qualified companies to go public and raise capital. Among its provisions are scaled-back SEC filing,

reporting, and disclosure requirements for emerging growth companies.

Lapse: In the context of Treasury Regulation §25.2704-1, regarding the treatment of certain lapsing

rights, a lapse of a liquidation or voting right occurs at the time a presently exercisable liquidation or

voting right is restricted or eliminated.

Leasing standard: Within the context of FASB pronouncements, the new leasing standard is a response

to the requests of investors and other users of financial statements for a better representation of an

organization’s leasing activities. Under the new leasing standard as set forth in ASC, a lessee will be

required to recognize assets and liabilities for leases with terms of more than 12 months. The

recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessor

will depend primarily on its classification as either a finance lease, or an operating lease. The new

leasing standard will require both types on the balance sheets of lessees. For public companies, the new

leasing standard takes effect for fiscal years, and interim periods within those fiscal years, beginning

after December 15, 2018. For all other organizations, the new leasing standard takes effect for fiscal

years beginning after December 15, 2019, and for interim periods within fiscal years beginning after

December 15, 2020.

Liquidation: The process by which a company, or a part thereof, is terminated, and the assets and other

property of the company are sold and redistributed.

Lock-up/“clear market” provision: A covenant contained within an underwriting agreement in which

the issuer of securities agrees not to sell shares or securities convertible into shares, or make any public

announcements regarding such a sale, including through the filing of a registration statement, for a

period of time after the initial public offering. The time period is usually 180 days.

Material fact: In accounting, a material fact is a fact that involves a material or significant quantitative

amount or qualitative fact which may affect financial statements to such an extent that the fact may

need to be disclosed. In determining whether a fact is material, accountants and auditors must use

professional judgment and define a materiality level as a whole. No official quantitative guidelines for

determining materiality have been established. Preliminarily, amounts less than 5% are often

considered immaterial.

MD&A: Management Discussion and Analysis. MD&A is the section within a company’s annual report

in which management discusses various aspects of the company’s business, both past and present,

detailing the period’s financial results and discussing topics that may not be evident from the company’s

financial statements.

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Misstatement: An error or mistake. In the context of financial statements, a misstatement is an

instance in which an assertion contained within a financial statement is not in accordance with GAAP. A

misstatement may either be material or immaterial, and intentional (fraudulent) or unintentional

(erroneous).

Multiple-Step Acquisition Rule (of Temporary Regulations under §7874): The Temporary Regulations

include a “Multiple-Step Acquisition Rule” to address transactions in which a foreign corporation (the

initial acquiring corporation) acquires substantially all of the properties held by a domestic entity (the

initial acquisition) in a transaction that does not result in the initial acquiring corporation being treated

as a domestic corporation under Section 7874(b), and, under a plan that includes the initial acquisition

(or a series of related transactions), another foreign corporation (the subsequent acquiring corporation)

acquires substantially all of the properties of the initial acquiring corporation (the subsequent

acquisition). The Multiple-Step Acquisition Rule treats the subsequent acquisition as a domestic entity

acquisition and the subsequent acquiring corporation as a foreign acquiring corporation, and defers

testing for inversion status until after the subsequent acquisition. When this rule applies, the stock of

the subsequent acquiring corporation received in the subsequent acquisition in exchange for stock of

the initial acquiring corporation is treated as stock of the subsequent acquiring corporation held by

reason of holding stock in the domestic entity. As a result of this rule, §7874 may apply to both the

initial acquisition and the subsequent acquisition.

“Near and dear” items: Within the context of determining a taxpayer’s domicile, “near and dear” items

are those objects or things with a sentimental and/or economic value to the taxpayer. “Near and dear”

items often include books, art, jewelry, and other family heirlooms. Typically, a taxpayer’s claim of

domicile is strengthened if his “near and dear” items are located within the state in which he is claiming

domicile.

Net operating loss (NOL): According to U.S. income tax law, a NOL occurs when certain tax-deductible

expenses of a company exceed its taxable revenues for that same period.

Net operating loss carryover: Also known as NOL carryforward and carryback. Loss carryforward refers

to the process of applying a current year’s net operating loss to future years’ profits to be available to

reduce tax liability. Loss carryback refers to the process of applying a current year’s net operating loss

to past years’ taxable income.

Nexus: Nexus, also known as sufficient physical or economic presence, is the determining factor in

whether an out-of-state business selling products into a state is liable for taxes on income derived

through in-state economic activity, or for the collection of sales or use taxes on sales into the

state. Nexus is required before a taxing jurisdiction can impose its taxes on an entity.

Nonbusiness assets: Within the context of the Internal Revenue Code, nonbusiness assets are assets

other than business assets.

Nonbusiness income: Any income generated that is not business income. Income earned outside of the

ordinary course of business or trade is nonbusiness income.

Non-GAAP financial information: Financial information that is calculated and presented on

methodologies other than in accordance with generally accepted accounting principles (GAAP).

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Non-ordinary course distribution: Within the context of the Temporary Regulations under §7874, a

non-ordinary course distribution is the excess of all distributions made during a taxable year by the

domestic entity with respect to its stock (or partnership interests), over 110 percent of the average of

such distributions during the 36-month period immediately preceding such taxable year.

Non-Ordinary Course Distribution Rule (of Temporary Regulations under §7874): Pursuant to the

Temporary Regulations under §7874, the Non-Ordinary Course Distribution Rule, non-ordinary course

distributions made by a domestic entity (including a predecessor) during the 36-month period ending on

the acquisition date will be treated as part of a plan a principal purpose of which is to avoid the

purposes of section 7874 (a per se principal purpose test). Accordingly, such distributions will be

disregarded for purposes of section 7874.

Non-reporting issuer: An issuer that is not subject to the reporting requirements of the Securities

Exchange Act of 1934.

Non-resident: Within the context of state income taxation, a person is a nonresident of a state if he

temporarily worked there with no intention of making that state his home or he received income from

sources, such as rental property, within that state.

Offer to sell: With respect to an initial public offering, an “offer to sell” is any publicity concerning the

offering or other publicity that could be viewed as exciting investor interest in the issuer, including

publication of information or public announcements that could condition the public or result in investor

interest, prior to the filing of the registration statement.

Omission: A failure to provide information. In the context of accounting, an omission is an instance in

which the failure to include a particular assertion within financial statements is not in accord with GAAP.

An omission may either be material or immaterial, and intentional (fraudulent) or unintentional

(erroneous).

Passive business investment: A passive business investment is one which provides fixed or

determinable annual or periodical income. Within the context of U.S. federal income taxation, income

earned through passive business investments within the U.S. by non-U.S. persons is subject to a 30%

withholding tax.

Passive Foreign Investment Company (PFIC): Within the context of U.S. federal income taxation, U.S.

persons ownings shares of a PFIC may choose: (i) current taxation on the income of the PFIC, or (ii)

deferral of such income subject to a deemed tax and interest scheme. The PFIC rules are a major U.S.

anti-deferral regime that can apply to U.S. persons owning shares in foreign corporations.

PCAOB: The Public Company Accounting Oversight Board. The PCAOB is a nonprofit corporation

established by the federal government to provide auditing standards to be used by independent

auditors of public companies and to oversee the audit process of public companies in order to protect

investors and the public interest.

PCAOB concept release: A report by the PCAOB outlining a proposed rule change. The purpose of a

concept release is to solicit public opinion before an actual proposed rule is announced. The PCAOB

specifies the comment period, the period of time during which public comment is sought.

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PCC: The Private Company Council. The PCC is the primary advisory body to the FASB on private

company matters. The PCC uses the Private Company Decision-Making Framework to advise the FASB

on the accounting for private companies under active consideration on the FASB’s technical agenda.

The PCC also provides the FASB on possible alternatives within GAAP to address the needs of users of

private company financial statements. Any proposed changes to GAAP are subject to endorsement by

the FASB.

Per Se Rule (of Proposed Regulations under §385): Pursuant to the Proposed Regulations under §385,

the Per Se Rule will treat a debt instrument as a “principal purpose debt instrument” if the funding

member issued the debt during the 72-month period beginning 36 months before the date of the

distribution or acquisition. The Per Se Rule allows an “ordinary course exception” for debt issued to

purchase property or receive services.

Planning materiality from an independent auditor’s perspective: Per the PCAOB’s Auditing Standard

No. 11, the consideration of materiality in the planning and performance of an audit requires the

establishment of a materiality level for auditing financial statements as a whole when determining the

audit procedures to be applied. To that end, when planning the nature, timing, and extent of audit

procedures, auditors should establish a materiality level for the financial statements as a whole that is

appropriate in light of the particular circumstances. When determining the nature, timing, and extent of

audit procedures, the materiality level for the financial statements as a whole must be expressed as a

specified amount.

Pro forma financial statement: A financial statement based on certain assumptions and projections.

Pro forma financial statements are sometimes used to prepare forward-looking financial statements

reflecting the estimated effects of current and future trends or changes, such as a merger, acquisition,

or divestiture.

Prospectus: A disclosure document required by and filed with the SEC that describes a particular class

of securities to potential purchasers. A prospectus typically supplies investors with material information

about the issuer of those securities and other details about the offering.

QIB: A qualified institutional buyer. A QIB is a purchaser of securities considered to be financially

sophisticated with respect to its investments and, as such, is recognized as being in less need of

protection than most public investors by market regulators. Generally, the qualifications for a QIB

designation are based on an investor’s total assets under management; requiring an institution to

manage at least $100 million worth of securities from issuers not affiliated with the QIB.

Qualitative issue: In the context of accounting as it relates to financial statements and reporting, a

qualitative issue estimates a decision outcome that is not subject to mathematical measurement.

Quantitative issue: In the context of accounting as it relates to financial statements and reporting, a

quantitative issue is an estimated decision outcome that is subject to mathematical measurement.

Rational basis: Rational basis is a form of judicial review. It is the most lenient form of review, as both

strict scrutiny and intermediate scrutiny are considered more rigorous. The rational basis form of

review is typically employed in cases where no fundamental rights or suspect classifications are at issue.

Within the context of state taxation, the rational basis test requires the state have some legitimate

purpose for imposing a tax on a stated transaction.

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Registrant: A company applying to register with the SEC as part of the IPO process.

Registration statement: The set of documents, including a prospectus, which a company must file with

the SEC before an initial public offering of securities.

Regulation S-K: The regulation as prescribed by the Securities Act of 1933 which establishes the

reporting requirements for SEC filings used by public companies seeking to issue securities through a

public offering. Regulation S-K sets forth the basic business, financial, and other information that must

be disclosed within an issuer’s filings with the SEC.

Regulation S-X: The regulation as prescribed by U.S. securities laws which establishes the specific

format and content of the financial reports required to be filed as part of registration statements,

annual and other reports, and proxy and information statements. Regulation S-X specifies the balance

sheets and statements of income and cash flows to be included within the disclosure documents to be

filed with the SEC.

Restatement: The revision and publication of an organization’s corrected previous financial statements

resulting from a prior material misstatement set forth within the entity’s previous financial statements.

A restatement may be the result of a failure to comply because of error or fraud.

Restructuring: Typically, a restructuring is a corporate reorganization designed to achieve greater

efficiency and profit.

Revenue recognition standard: Within the context of FASB and IASB guidance, the new revenue

recognition standard changes existing revenue recognition provisions and removes inconsistencies and

weaknesses in existing revenue requirements; provides a more robust framework for addressing

revenue issues; improves comparability of revenue recognition practices across entities, industries,

jurisdictions, and capital markets; provides more useful information to users of financial statements

through disclosure requirements; and simplifies the preparation of financial statements by reducing the

number of requirements to which an organization must refer. The new revenue recognition standard

applies a five-step approach to recognizing revenue to depict the transfer of promised goods or services

to customers in an amount that reflects the consideration to which the entity expects to be entitled in

exchange for those goods or services. For public companies, the new revenue standard should be

applied to annual reporting periods after December 15, 2017, while nonpublic companies should apply

the new revenue standard to annual reporting periods beginning after December 15, 2018.

Risk assessment: In the context of accounting and auditing, risk assessment is the process of identifying

and assessing the risks of material misstatement within financial statements. Auditors should perform

risk assessment procedures that are sufficient to provide a reasonable basis for identifying and assessing

the risks of material misstatement.

Road show: Presentations given by the issuer of securities in an initial public offering, at different

locations throughout the country, to potential investors and purchasers of those securities.

Rule 10b-5: The rule promulgated by the SEC, pursuant to the Securities Exchange Act of 1934,

prohibiting any act or omission resulting in fraud or deceit in connection with the purchase or sale of

securities.

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Rule 83: The SEC rule providing the procedure by which persons submitting information to the SEC can

request confidential treatment of such information.

Rule 135: The SEC rule providing a limited safe harbor to issuers of securities who have filed a

registration statement, which has not yet been deemed effective, for certain pre-filing communications,

including limited press releases, which comply with the rule’s requirements.

Rule 163A: The SEC rule providing a limited safe harbor to issuers of securities who have filed a

registration statement, which has not yet been deemed effective, for certain pre-filing communications

made more than 30 days prior to the filing of the registration statement, which comply with the rule’s

requirements.

Rule 169: The SEC rule providing a limited safe harbor to the issuers of securities who have filed a

registration statement, which may or may not yet have been deemed effective, for the continued

publication or dissemination of factual business information, which complies with the rule’s

requirements, prior to, during, or after the course of an initial public offering.

Rule 418: The SEC rule governing the request for and treatment of supplemental information regarding

the registrant, the registration statement, the distribution of securities, and other information relating

to an issuer’s filing.

S-1: Form S-1 is the SEC filing used by certain companies to register their securities with the SEC as part

of the initial public offering process. Form S-1, known as the registration statement, contains basic

information relating to the business operations and finances of the issuer with respect to the securities

offering.

SAB: Staff Accounting Bulletin. SABs reflect the views of the staff of the Securities and Exchange

Commission regarding accounting-related disclosure practices. SABs do no create GAAP.

SAB 74: This bulletin expresses the SEC staff’s view requiring registrants to provide information about

the estimated effect on financial statements of an enacted, but not yet adopted accounting standard.

The purposes of SAB 74 disclosures are to inform users that the registrant will be required to adopt a

new standard, and to assist users in assessing the impact of adoption on the registrant’s financial

statements upon adoption.

SAB 99: This bulletin expresses the SEC staff’s view that exclusive reliance on certain quantitative

factors to assess materiality in preparing financial statements and performing audits of those financial

statements is inappropriate. According to SAB 99, misstatements are not immaterial simply because

they fall beneath a numerical threshold.

SAB 108: This bulletin expresses the SEC staff’s view regarding the process of quantifying financial

statement misstatements, particularly with respect to the effects of prior year errors on current

financial statements.

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Sales and use taxes: A use tax is a type of excise tax imposed by numerous state governments. A use

tax is essentially the same as sales tax, and is applied not where a product or service was sold, but rather

where a merchant bought a product or service and then converted it for its own use without having paid

tax when it was initially purchased. Use taxes are functionally equivalent to sales taxes. They are

typically levied upon the use, storage, enjoyment, or other consumption in the state of tangible personal

property that has not been subjected to a sales tax.

Sarbanes-Oxley Act: The federal law that set new and expanded reporting requirements for all public

company boards, management, and public accounting firms in the U.S. The Sarbanes-Oxley Act was

designed to protect the general public and shareholders from accounting errors and fraudulent

practices.

Scienter: With respect to matters involving section 10(b) and Rule 10b-5 of the Securities Exchange Act

of 1934, scienter is the required intent, on the part of the defendant, to deceive, manipulate, or

defraud, which an aggrieved investor must plead in order to maintain an action pursuant thereto.

SEC: The U.S. Securities and Exchange Commission. The SEC is the U.S. government agency responsible

for overseeing securities transactions, the activities of financial professionals, and securities trading in

order to prevent fraud and deception in the purchase or sale of securities.

SEC concept release: A report by the SEC outlining a proposed rule change. The purpose of a concept

release is to solicit public opinion before an actual proposed rule is announced. The SEC specifies the

comment period, the period of time during which public comment is sought.

Securities Act of 1933: The legislation requiring that any offer or sale of securities be registered with

the SEC.

Securities Exchange Act of 1934: The legislation forming the basis of financial market and participant

regulation and periodic reporting requirements.

Separate filing: Pursuant to this system of filing income taxes, a multistate corporation with subsidiaries

located in multiple states is allowed to report the profit of each of its subsidiaries independently.

Serial Domestic Entity Acquisitions Rule (of Temporary Regulations under §7874): Pursuant to the

Temporary Regulations under §7874, the inversion rules would apply to a subsequent acquisition where

the acquired foreign corporation was itself previously involved in an inversion transaction and the

subsequent acquisition was part of the same plan (or series of related transactions) that included the

initial inversion.

Shoe/option shares: Also known as a Greenshoe Option. It is a provision contained within an

underwriting agreement that grants the underwriter the right to sell more shares of the securities

making up the public offering than originally planned by the issuer.

SIC code: The Standard Industrial Classification code. The SIC codes are a series of four-digit codes used

by the federal government to classify industry areas.

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Simplification initiative: The simplification initiative is a tightly-focused initiative launched by the FASB

to make narrow-scope simplifications and improvements to accounting standards through a series of

short-term projects. The projects included within the initiative are intended to improve or maintain the

usefulness of the information reported to investors while reducing cost and complexity in financial

reporting.

Spin-off: A spin-off is the transfer by a parent company to its shareholders of the ownership of a former

subsidiary or division of that parent company that becomes an independent business with existing

products, employees, and other assets taken from its parent company. Shareholders of the parent

company receive shares in the spin-off (i.e., new company).

Split-off: A corporate reorganization through which the stock of a corporation that was formerly an

operating division, but which has been incorporated, or if the stock of a pre-existing subsidiary or

affiliated company is transferred to the shareholders of the parent or controlling company in exchange

for stock in the parent or controlling company, in exchange for stock in the parent or controlling

company.

Split-up: A transaction in which a parent or controlling company splits its existing business into to two

or more new subsidiary companies, the shares of which are then distributed non pro-rata to

shareholders of the parent corporation in exchange for the distribute shareholders’ ownership in that

former parent corporation. This resembles a complete liquidation of the parent corporation in that the

shareholders of the former parent corporation in a split-up own shares of the corporation(s) whose

stock is distributed to them in the split-up and the parent ceases to exist.

Standing Advisory Group (SAG): The PCAOB’s Standing Advisory Group was convened to advise the

PCAOB with respect to the development of auditing and related professional standards of practice.

Statutory prospectus: A final prospectus which is complete with respect to all details concerning a

public offering and which is made available to potential buyers and investors.

Statutory resident: Within the context of state income taxation, a statutory resident is a person who,

while not domiciled within a state, can be subject to income taxation if he has minimum sufficient

contacts within the state. Typically, an in-state presence of more than 6 months and the maintenance

of a permanent place of abode in-state are factors used in determining whether a taxpayer is a statutory

resident subject to state income tax.

Substantial doubt: Within the context of FASB guidance on the auditor’s consideration of an entity’s

ability to continue as a going concern, substantial doubt about an entity's ability to continue as a going

concern exists when conditions and events, considered in the aggregate, indicate that it is probable that

the entity will be unable to meet its obligations as they become due within one year after the date that

the financial statements are issued (or within one year after the date that the financial statements are

available to be issued when applicable). The term “probable” is used consistently with its use in Topic

450 on contingencies.

Tax-free reorganization: A corporate acquisition, or division, or other restructuring that is not taxable at

either the corporate or shareholder level. A tax-free reorganization must meet certain statutory

requirements in order to qualify.

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Testing the waters: In the context of an initial public offering, testing the waters refers to the process

made permissible by the JOBS Act allowing EGCs and their underwriters to engage in oral and written

communications with IAIs and QIBS prior to, or after, the filing of a registration statement, but prior to

its effectiveness, so as to gauge investor interest in the proposed public offering. The “testing the

waters” provision represents a significant modification of the SEC’s traditional rules governing

communications during the registration process.

Transaction rules (of Proposed Regulations under §385): Pursuant to the Proposed Regulations under

§385, authorizing the Department of Treasury to issue regulations, as necessary and appropriate, to

determine whether an interest in a corporation is in whole, or in part, stock or indebtedness, the

transaction rules allow the IRS to re-characterize debt as equity based on conditions as set forth in the

regulations. These transaction rules include: (i) the General Rule; (ii) the Funding Rule; (iii) the Per Se

Rule; (iv) the Anti-Abuse Rule; and (v) exceptions thereto.

10-K: A Form 10-K is a comprehensive annual summary required by the SEC of all publicly-traded

companies. A Form 10-K provides an annual summary of financial performance in greater detail than

the company’s annual report to shareholders. A 10-K typically includes information regarding company

history and organizational structure, equity, holdings, earnings per share, etc.

10-Q: A Form 10-Q is a comprehensive quarterly report required by the SEC of all publicly-traded

companies. A Form 10-Q provides information similar to that contained in a Form 10-K on a quarterly

basis, though the information is generally less detailed and the financial statements are unaudited.

Underwriter: An entity that serves to administer the public issuance and distribution of securities from

a company or other issuer. In the context of corporate securities, underwriters are typically investment

banks or a group of investment banks.

Underwriting agreement: A contact between underwriters and the company issuing securities through

a public offering which contains the details of the transaction, including the underwriters’ commitment

to purchase securities, the price to be paid, and the initial resale price.

Uniform Division of Income for Tax Purposes Act (UDITPA): UDITPA provides a uniform method of

dividing income between states for tax purposes so as to ensure that a taxpayer is not taxed more than

once on his net income. UDITPA defines business income as income arising from transactions and

activity in the regular course of the taxpayer’s trade or business and includes some income from

tangible and intangible property if the acquisition, management, and disposition of the property

constitute integral parts of the taxpayer’s regular trade or business operations.

Uniform Standards of Professional Appraisal Practice (USPAP): The generally accepted standards for

professional appraisal practice in North America, containing the standards for all types of appraisal

services, including personal and business property, and real estate appraisals.

Unitary filing: Pursuant to this system of filing income taxes, a multistate corporation with subsidiaries

located in multiple states must calculate taxable income by combining the taxable income of all

members of a unitary group. The unitary filing approach disregards legal entities and geographical

boundaries and, instead, focuses on the economic “unit.”

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U.S. Chamber of Commerce: The U.S. organization representing the interests of private businesses. It

lobbies for legislation perceived to be favorable to business, and it supports free trade and deregulation.

The U.S. Chamber of Commerce was founded in 1912, and is based in Washington, D.C.

Valuation discount: The deficiency in value that a buyer estimates for a company compared to similar

companies in the same industry.