Download or read book The Effect of SEC Reviewers on Comment Letters and Financial Reporting Quality written by Matthew Baugh and published by . This book was released on 2017 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether the idiosyncrasy of individual employees of U.S. financial regulators contributes to inconsistent regulatory outcomes. Using a sample of SEC comment letters, we show that SEC reviewers' idiosyncratic style plays an economically and statistically significant role in explaining the cross-sectional variation in filing review outcomes, even after holding firm and disclosure attributes constant. We also show that the reviewer style is persistent across firms and time. Finally, we find that reviewers with a stricter style are associated with improved financial reporting quality. These findings suggest that individual SEC reviewers have significant influence on the SEC filing review process.
Download or read book The Effect of Enforcement Transparency written by Miguel Duro and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the effect of the public disclosure of the Securities and Exchange Commission (SEC) comment-letter reviews (CLs) on firms' financial reporting. We exploit a major change in the SEC's disclosure policy: in 2004, the SEC decided to make its CLs publicly available. Using a novel dataset of CLs, we analyze the capital-market responses to firms' quarterly earnings releases following CLs conducted before and after the policy change. We find that these responses increase significantly after the policy change. These stronger responses partly occur while the review is still ongoing and persist on average for two years. Corroborating these results, we also document a set of changes that firms make to their accounting reports following CLs. Our results indicate that disclosure of regulatory oversight activities can strengthen public enforcement.
Download or read book Current Financial Reporting Trends written by Cheryl de Mesa Graziano and published by . This book was released on 2007 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 SEC Review of Earnings Conference Calls written by Alina Lerman and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Securities and Exchange Commission (SEC) reviews companies' mandatory filings and issues comment letters to ensure compliance with applicable financial reporting requirements. We explore the nature, determinants, and consequences of SEC comment letters that refer to information disclosed in voluntary earnings conference calls. First, we provide a rich descriptive analysis of the subject and format of conference call disclosures targeted by the SEC. Next, we document that conference call comment letters are more likely when filing reviews are more complex and conference calls are informative; these comment letters are less likely when SEC staff are resource-constrained. We find that factors associated with overall regulatory scrutiny and firm visibility are not strong drivers of SEC attention to conference calls. In terms of consequences, we find that comment letters referencing calls are associated with higher-quality reviews, and we observe higher remediation costs for these letters. Finally, we show that relative to the typical filing review process, SEC use of conference call disclosures leads to more changes in firms' future mandatory disclosures along with an increase in overall information asymmetry.
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 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 Does the SEC s Oversight Affect the Accounting Quality of Newly public Companies written by Michael A. Schuldt and published by . This book was released on 2013 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation examines whether the U.S. Security and Exchange Commission's (SEC) oversight of public companies financial reporting affects accounting quality. I investigate whether the SEC's regulatory oversight during the initial public offering (IPO) process subsequently affects accounting quality. I examine various attributes of the SEC's IPO comment letter process, and expect that increasing severity of the process is associated with higher post-IPO accounting quality. I find that only certain attributes of the IPO comment letter process are associated with post-IPO accounting quality, and find limited evidence that increasing severity of the process is associated with post-IPO accounting quality. I further examine whether the SEC's oversight of public companies' periodic financial reporting affects accounting quality. I investigate various attributes of the SEC's Form 10-K comment letter process for firms receiving their first SEC comment letter review of their Form 10-K, and I expect that increasing severity in the comment letter process is associated with higher post-review accounting quality. I find only limited associations between attributes of the 10-K comment letter process and post-review accounting quality, and cannot conclude that increasing severity in the process is associated with higher post-review accounting quality.
Download or read book Current Financial Reporting Trends A Qualitative Review of SEC Comment Letters written by and published by . This book was released on 19?? with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book SEC Reporting written by BDO USA and published by John Wiley & Sons. This book was released on 2020-05-18 with total page 610 pages. Available in PDF, EPUB and Kindle. Book excerpt: This title clarifies new, difficult, and important reporting and disclosure requirements for SEC Reporting. You'll learn: The latest SEC developments and hot buttons. How to apply regulations S-X, S-K, and other SEC guidance. How to prepare and review financial statements and their related disclosures. It includes AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.
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 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 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 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 State Sponsors of Terrorism Disclosure and SEC Financial Reporting Oversight written by Robert Hills and published by . This book was released on 2020 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether SEC effort to review state sponsors of terrorism (SST) disclosure negatively influences financial reporting oversight. Using comment letter inquiries about SST to measure effort, we find the likelihood that the SEC fails to identify a financial reporting error increases when comment letters reference SST. Consistent with SST disclosure review crowding out financial reporting oversight, comment letters referencing SST are less likely to mention accounting, non-GAAP, and MD&A issues. These effects are unique to SST as we find references to non-SST issues complement financial reporting oversight. Data obtained through a Freedom of Information Act request reveals a temporal shift in the occupational mix of SEC reviewers towards (away from) lawyers (accountants) that coincides with an increased focus on SST. Path analysis reveals that accountants (lawyers) are more (less) likely to detect errors and comment on financial reporting topics, with an indirect path through SST exacerbating these effects.
Download or read book Regulatory Oversight and Reporting Quality written by Wenqiang Pan and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effects of SEC office change on regulatory oversight and firms' reporting quality. Firms are assigned to the SEC's filing review offices. However, the SEC regularly change office assignment for firms in some industries. I find that SEC oversight on newly assigned firms will be more intense. Firms are more likely to receive comment letters and there are more accountants on the filing review team. Then I provide evidence that firms improve their reporting quality after office change. Firms' financial reports are less likely to be restated and more readable. The effects start in the first year of office change and are stronger for firms with long office tenure. The SEC is more likely to be involved in newly assigned firms' restatements and asks fewer questions about severe issues in the comment letter. Overall, the results suggest that office change brings a "fresh look" benefit and leads to an increase in the intensity of SEC oversight. Firms improve their reporting quality by anticipating the increase.
Download or read book The Impact of Sec Scrutiny on Financial Statement Reporting of In Process Research and Development Expense written by Thomas D. Dowdell and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document the effect of SEC scrutiny on how firms report in-process research and development costs (IPRD), and investigate an important but previously unexamined means by which the SEC can influence financial reporting - oversight from the Office of the Chief Accountant, and the review and comment process in the Division of Corporation Finance. We examine restatements of previously expensed IPRD following the 1998 guidance provided by Chief Accountant Lynn Turner, who communicated his opposition to "excessive write-offs of In-Process Research and Development costs," and Chairman Arthur Levitt, who voiced his concerns about earnings management. Restatements reduce IPRD expense by 62 percent on average, and increase pre-tax income by 142 percent, with a median change of 32 percent. As well, in a sample of 582 acquisitions accounted for as purchases that included IPRD in SIC industry 737 (computer programming and software), mean IPRD charges as a percentage of assets acquired shrank 71 percent in the years following Chief Accountant Turner's guidance. The results demonstrate the potent impact SEC opinions about proper accounting practice can have on registrants' financial reporting, even when the agency is not formally setting new standards.
