Download or read book Is the Character of SEC Comment Letters Relevant to Recipients written by Jordan Rippy and published by . This book was released on 2017 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has provided mixed results regarding changes in firm behavior in response to comment letters from the Securities and Exchange Commission (SEC) (Johnston and Petacchi 2016; Kubick, Mayberry, Omer, and Lynch 2016; Robinson, Xue, and Yu 2011; Wang 2016). This study documents that comment letters come in two main categories: accounting-focused letters and disclosure-focused letters. I examine whether the character of comment letters (accounting versus disclosure) impacts a firm's response to comment letters questioning the allowance for doubtful accounts (AFDA). I find that firms with abnormal accruals in the AFDA are more likely to receive an accounting-focused comment letter and these firms are also more likely to constrain AFDA-related earnings management behaviors in the period after comment letter resolution. Disclosure-focused comment letters exhibit no such patterns. The results of this study suggest (1) the lack of consistent findings in prior research may be partially attributable to homogenously classifying dissimilar comment letters and (2) the SEC filing review and comment letter process may be an effective tool in monitoring and constraining earnings management behaviors.
Download or read book SEC Comment Letters written by Hugh Grove and published by . This book was released on 2015 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is the first study to demonstrate strong informational content and economic significance associated with the issuance of SEC comment letters. Access to comment letters, for forensic accountants and investors, is a relatively recent phenomenon and little research has focused on the impact the letters have on security pricing. We construct a “red flag” forensic metric to examine the information content in SEC comment letters and analyze market performance surrounding the issuance event. The metric consists of five models that are developed to screen for and identify financial reporting problems. We document that SEC comment letters contain salient information about a firm's financial condition, valuation, and future performance that is not only consistent with “red flags” but is apparently overlooked by investors and other financial statement users. Although the letters themselves do not evaluate the merits or investment potential associated with any reported transaction, they do reflect significant industry, accounting and disclosure expertise. We conclude that comment letters are a useful but unrecognized source of independent expert opinion regarding the quality of a firm's financial reports.
Download or read book Textual Classication of SEC Comment Letters written by James Patrick Ryans and published by . This book was released on 2016 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this study is to identify important SEC comment letters and examine the mechanisms by which they affect firm value. The SEC periodically reviews public-company financial statements, issuing comment letters in response to disclosure deficiencies, to ensure that investors are provided with material information, and to prevent fraud. Given that comment letters consist of unstructured text, statistical text classification may be an effective technique to identify comment letter importance. The information in comment letters is distributed over several separate filings and they are not widely cited by the press or analysts as information sources, which may result in investor inattention and underreaction to their disclosure. I utilize negative abnormal returns following comment letter disclosure as the primary indicator of comment letter importance, and develop a Naive Bayesian classification model that signals important comment letters from their text features that are associated with the indicator. In a holdout sample, the text classification model correctly identifies important comment letters between 10 and 40 percent better than chance. The average out-of-sample abnormal return for firms with signaled comment letters is -5.8 percent during the 90 days post-disclosure, but only when the comment letters were viewed on EDGAR. Signaled comment letters are associated with lower persistence of profits and increased material restatements in the year following comment letter disclosure.
Download or read book SEC Comment Letter Disclosures and Short Sellers Front Running written by Sam (Sunghan) Lee and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior studies show that comment letters released by the Securities and Exchange Commission provide information on firms' financial reporting quality and can have adverse value implications about the firms. We examine whether short sellers front-run comment letter disclosures and take short positions based on the economic implications of the letters. We find that short interest increases before comment letter disclosures and that the increase is positively associated with the severity of the letters. We also find evidence suggesting that short sellers obtain private information through social connections with corporate insiders. Finally, we document a negative but delayed market reaction to the disclosure of severe comment letters. These results suggest that front-running the comment letter disclosure is not the optimal trading strategy for short sellers. Short sellers can gain similar profits, and bear less risk, if they put off increasing their short positions until after the disclosure.
Download or read book SEC Comment Letters and Insider Sales written by Patricia Dechow and published by . This book was released on 2016 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that insider trading is significantly higher than normal levels prior to the public disclosure of SEC comment letters relating to revenue recognition. Furthermore, insider trading is triple its normal level for firms with high short positions. We find a small negative return at the comment letter release date and a negative drift in returns of one to five percent over the next 50 days following the release. We also find that greater pre-disclosure sales are associated with a stronger negative drift. This evidence suggests that insiders appear to benefit from trading prior to revenue recognition comment letters. We investigate whether the delayed price reaction to comment letter releases is due to investor inattention. Consistent with this explanation, we document that comment letters are downloaded infrequently from EDGAR in the days following their public disclosure.
Download or read book Model Rules of Professional Conduct written by American Bar Association. House of Delegates and published by American Bar Association. This book was released on 2007 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Model Rules of Professional Conduct provides an up-to-date resource for information on legal ethics. Federal, state and local courts in all jurisdictions look to the Rules for guidance in solving lawyer malpractice cases, disciplinary actions, disqualification issues, sanctions questions and much more. In this volume, black-letter Rules of Professional Conduct are followed by numbered Comments that explain each Rule's purpose and provide suggestions for its practical application. The Rules will help you identify proper conduct in a variety of given situations, review those instances where discretionary action is possible, and define the nature of the relationship between you and your clients, colleagues and the courts.
Download or read book The Impact of SEC Comment Letter Releases written by Bret A. Johnson and published by . This book was released on 2015 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: In June 2004, the SEC made a policy decision to publicly release comment letter correspondence following its filing reviews. Comment letter correspondence represents a dialogue between the SEC staff and public companies' managers regarding their disclosure decisions. The release of comment letter correspondence could provide investors with greater context and detail underlying firms' financial reports. Leading up to the policy, there was an increase in the number of Freedom of Information Act ("FOIA") requests for comment letter correspondence, which suggests that it was perceived to have informational value. However, there is limited empirical evidence on whether investors respond to its release. I specifically examine whether comment letter releases (1) provide investors with incremental information beyond companies' existing financial reports and (2) influence information asymmetry among investors. I do not find strong evidence of investor responses absent a concurrent filing, and I find mixed evidence on whether information asymmetry increases immediately following comment letter releases. Further, the increases in information asymmetry are exacerbated for releases with a high level of comment letter attention by sophisticated investors. Overall, these results suggest that comment letter releases are not informative to investors in the absence of a concurrent or future information release and that information asymmetry is mitigated by non-sophisticated investor attention to the releases.
Download or read book The Readability of Company Responses to SEC Comment Letters and SEC 10 K Filing Review Outcomes written by Cory A. Cassell and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: An emerging literature shows that shareholders benefit from the Securities and Exchange Commission's (SEC) filing reviews in terms of improved disclosures and reduced information asymmetry. However, these reviews also impose significant costs on companies because comment letter remediation diverts time and resources away from normal operations and may result in restated or amended filings. Applying processing fluency theory, we examine whether the readability of the company's initial response to an SEC comment letter is associated with the likelihood of unfavorable outcomes from the review. We find that less readable company responses are associated with longer SEC response times and a greater likelihood that the company restates or amends a reviewed filing. Because the company response is preceded by a specific request for information from the SEC (i.e., a prompt), our setting allows for an improved ability to disentangle the effects of disclosure readability from the effects of disclosure content.
Download or read book Textual Classification of SEC Comment Letters written by James Ryans and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the impact of SEC comment letters on future financial reporting outcomes and earnings credibility. Naive Bayesian classification identifies comment letters associated with future restatements and write-downs. An investor attention-based quantitative measure of importance, using EDGAR downloads, is also predictive of these outcomes. Disclosure-event abnormal returns, revenue recognition comments, and the number of letters in a conversation appear to be useful quantitative metrics for classifying importance in certain settings. This study also documents trends in comment letter topics over time, and identifies topics associated with the textual and quantitative classifications of importance, providing insights into the factors drawing investor attention and which relate to future restatements and write-downs. Innocuous comment letters are associated with improvements in earnings credibility following comment letter reviews.
Download or read book The Impact of SEC Comment Letters and Short Selling on the Demand for Audit Quality written by Justyna Skomra and published by . This book was released on 2018 with total page 250 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Sarbanes-Oxley Act of 2002 (Section 408) requires the Securities and Exchange Commission (SEC) to conduct periodic reviews of financial statements and related disclosures for publicly traded firms. The reviews are documented in the form of comment letters issued to a company's management for failure to prepare financial statements in accordance with generally accepted accounting principles (GAAP). Short interest traders are considered to be the most sophisticated group of investors providing additional monitoring of firms in the market. In this dissertation, I examine the impact of SEC comment letters and short selling positions on the demand for audit quality by management of client firms. Prior studies have shown that comment letters provide a significant signal to SEC registrant companies and their auditors about noncompliance with GAAP and other SEC regulations. As auditors play a critical role in the filing process of a company, they also contribute to the receipt of comment letters by their clients. Additionally, they play a critical role in bridging the information gap between investors and the firm. I examine the impact of two types of monitoring mechanisms, regulatory and market-based, on the subsequent demand for audit quality by management of client firms. More specifically, I examine whether the release of the comment letter combined with short selling activity (1) influences auditor's efforts reflected in increased audit fees, (2) leads to subsequent auditor resignation/dismissal due to inability to provide demanded high quality audits, (3) triggers downward changes in discretionary accrual, (4) decreases likelihood of restatements, (5) leads to issuance of material weaknesses opinion, and lastly (6) decreases the likelihood of the PCAOB (Public Company Accounting Oversight Board) inspection deficiencies. Based on the sample of unique comment letters from years 2005 through 2015 and the information on the short interest positions, I find varying level of support for the tested hypothesis. Overall, the results are generally consistent across the proxies used to measure audit quality. Hence, they indicate that both monitoring mechanisms have an impact on the demand for higher quality audits. These findings are robust to controls for client and auditor characteristics.
Download or read book The Technique of Clear Writing written by Robert Gunning and published by McGraw-Hill Companies. This book was released on 1968 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: What your reader wants; Ten principles of clear writing; Causes and cures.
Download or read book SEC Comment Letters and Firm Disclosure written by Zahn Bozanic and published by . This book was released on 2018 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an effort to enhance informational transparency for investors, the SEC periodically reviews public firms' filings for regulatory compliance. Although the SEC dedicates significant resources to the filing review process, the efficacy of this process is unclear. Upon receipt of a comment letter consequent to the SEC's review, the firm can either remedy perceived disclosure deficiencies or attempt to avoid making substantive disclosure changes, including by requesting that certain additional information be treated as confidential or by negotiating with the SEC. In this paper, we first examine the nature, extent, and impact of modifications to firms' disclosures requested by an SEC comment letter. While our initial evidence suggests that firms enhance their disclosure, we find that Rule 406 confidential treatment requests and registrant negotiation have an attenuating effect. Further, consistent with proprietary cost concerns, we show that firms in high tech industries and with greater amounts of R&D are more likely to request confidential treatment. We then examine informational transparency in order to test the SEC's stated intention of the filing review process. We find that improvements to firms' disclosures following a comment letter are associated with a decrease in information asymmetry and a reduction in litigation risk. Collectively, our paper contributes to the literature on disclosure regulation by providing evidence that the SEC comment letter process generally enhances firms' disclosures, improves informational transparency for investors, and mitigates firms' litigation risk, but that some firms take actions that diminish these enhancements.
Download or read book Styles of Regulators written by Truc (Peter) Do and published by . This book was released on 2018 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: Security regulations are enforced by SEC staff members. Conceptually, the regulations are to be uniformly enforced despite personal differences among SEC enforcers. We offer evidence to the contrary. Using the SEC's comment letters as our setting, we find that SEC staff members exhibit unique personal “styles.” The effects of their personal styles on firms' remediation costs, the contents of SEC comment letters, and the quality of firms' financial reporting are surprisingly large. We manually collect information on SEC staff members. Our results demonstrate that female staff members are generally tougher reviewers and that CPA qualification matters. Overall, our study offers evidence that SEC staff members exhibit individual differences, and their styles shape firms' financial reporting.
Download or read book Does Auditor Involvement Expedite SEC Comment Letter Resolution written by Ryan Ballestero and published by . This book was released on 2019 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The remediation of Securities and Exchange Commission (SEC) comment letters can impose significant costs on companies. This study examines whether auditor involvement in the SEC comment letter process expedites comment letter resolution. Such a finding would indicate that auditors add value outside of the annual financial statement audit. We measure auditor involvement by identifying whether the audit partner is copied on SEC correspondence. First, we document that auditor involvement is more likely when the SEC's comment letter relates to one or more accounting issues. Then, we show that comment letters that copy the partner, especially a partner with greater experience, have reduced time to resolution. In particular, we provide evidence suggesting that copying the audit partner reduces the amount of time it takes the company to respond to a SEC comment letter and copying a more experienced partner reduces the SEC's response time to the company. We also find that copying more experienced partners is associated with clearer responses to the SEC and shorter times to reach full resolution. Our findings indicate that auditors often add value outside of the financial statement audit, while likewise expanding the understanding of the relationship between partner attributes and financial reporting outcomes.
Download or read book SEC Comment Letters written by Allison J. Fukano and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book SEC Comment Letters on Domestic Registrants written by Deloitte & Touche and published by . This book was released on 2009 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Embedded Derivatives written by International Accounting Standards Board and published by . This book was released on 2009 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt:
