The ability to detect misreporting is an important aspect of financial reporting regulation. I derive a measure of SEC error detection rates using information from comment letter reviews. Conditional on the SEC issuing a comment letter, I find that the review team detects an error resulting in a restatement in 4.6 percent of cases, while firms eventually restate financial reports for 13.6 percent of periods under review. My measure of SEC error detection rates is the ratio of reviews that detect an error to total reviews that could have detected an error. I document a positive association between detection rates and review team size. Using a novel approach to identify examiner characteristics, I show that this association is driven by the number of accountants on the review team. I find an economically insignificant association between individual examiner performance and economic or career incentives.

Staff at the U.S. Securities and Exchange Commission (SEC) conduct recurring reviews of firms’ filings to deter misconduct and facilitate investor access to high-quality information. We identify the names of SEC staff who work on a comment letter and examine whether their prior involvement (i.e., continuity) is associated with comment letter quality. Our results are consistent with continuity leading to lower quality comment letters. Continuity is associated with fewer substantive comments, agreed-upon disclosure changes, and greater similarity between consecutive comment letter reviews. These results are consistent with continuity increasing staffs’ tendency to focus on familiar issues and overlook other areas of potential deficiencies. Time, changes in firms’ operations, and increasing staffs’ feelings of accountability can mitigate the negative effect of continuity on comment letter quality. Our study suggests benefits to a fresh perspective in regulatory monitoring.

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