Regulatory Oversight of Financial Reporting: Securities and Exchange Commission Comment Letters

Johnston, Rick; Petacchi, Reining

doi:10.2139/ssrn.1291345

Cited by 45 publications

(96 citation statements)

References 45 publications

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“…However, it is important to note that IPO firms start off as being characterised by high asymmetries of information relative to existing publicly listed stocks so one must exercise extreme caution before drawing conclusions for a wider sample of publicly traded stocks. Indeed Johnston and Petacchi (2012) find the opposite result for 150 publicly listed firms that received CLs during 2005 and 2006. They find evidence of reduced return volatility and trading volume around earnings announcements that were preceded by an SEC CL.…”

Section: Prior Research On Sec Clsmentioning

confidence: 87%

External Auditor Reassessment of Client Business Risk Following the Issuance of a Comment Letter by the SEC

Gietzmann¹,

Pettinicchio

2013

European Accounting Review

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Following Arthur Andersen's conviction for obstructing justice, auditors faced a one-time significant change in their regulatory environment because it was clear that (i) major audit partnerships could be closed and (ii) post Sarbanes-Oxley Act (SOX), regulators would take a far more attentive (aggressive) role. In response auditors considered whether the pricing of audits should be revised to take account of the increased risk of regulatory intervention and litigation. Obviously such re-pricing would need to be targeted at those firms for which the risks were greatest. One early warning signal of such events occurring is the issuance by the Security Exchange Commission (SEC) of a Comment Letter (CL). We investigate whether there is any evidence that if a client receives a CL this is used to re-price audit services. Specifically, we investigate whether issuance resulted in upward pressure on audit fees, and whether this effect was simply transient around the issuance period or alternatively persisted some years into the future. This research finds that after a client receives a CL, auditors adjust audit fees upwards in the period in which the CL is received. In addition it is shown that for subsequent periods in which the auditor does not spend time assisting the client respond to a specific CL, an initial rise in audit fee persists. This is consistent with the hypothesis that auditors reassess the reputation and litigation risk of the client on the basis of the SEC issuance of a Comment Letter.

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Section: Prior Research On Sec Clsmentioning

confidence: 87%

External Auditor Reassessment of Client Business Risk Following the Issuance of a Comment Letter by the SEC

Gietzmann¹,

Pettinicchio

2013

European Accounting Review

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“…This paper contributes to the accounting literature on regulation and the political process by presenting a fuller picture of the role of firm political connections in SEC oversight. We also contribute to the growing literature on CL determinants and consequences (e.g., Cassell et al 2013;Bozanic et al 2015;Johnston and Petacchi 2014;Dechow et al 2016). By focusing on how firm PC affects the likelihood of receiving CLs, we extend the economic analysis of CL activity into the political domain.…”

Section: Introductionmentioning

confidence: 99%

Is the SEC captured? Evidence from comment-letter reviews

Heese

Khan

Ramanna

2017

Journal of Accounting and Economics

149

100

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SEC oversight of publicly listed firms ranges from comment letter (CL) reviews of firms' reporting compliance to pursuing enforcement actions against violators. Prior literature finds that firm political connections (PC) negatively predict enforcement actions, inferring SEC capture. We present new evidence that firm PC positively predict CL reviews and substantive characteristics of such reviews, including the number of issues evaluated and the seniority of SEC staff involved. These results, robust to identification concerns, are inconsistent with SEC capture and indicate a more nuanced relation between firm PC and SEC oversight than previously suggested.

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“…CLs therefore are an important part of SEC oversight. In this light, a number of recent studies have investigated the determinants and consequences of CLs (e.g., Cassell et al 2013;Bozanic et al 2015;Johnston and Petacchi 2014;Dechow et al 2016). These studies have not, however, examined the relation between firm PC and the likelihood of receiving CLs.…”

Section: Introductionmentioning

confidence: 99%

“…We also contribute to the growing literature on CL determinants and consequences (e.g., Cassell et al 2013;Bozanic et al 2015;Johnston and Petacchi 2014;Dechow et al 2016). By focusing on how firm PC affects the likelihood of receiving CLs, we extend the economic analysis of CL activity into the political domain.…”

Section: Introductionmentioning

confidence: 99%