ABSTRACT We investigate how the Securities and Exchange Commission's (SEC) oversight affects the timing and valuation of seasoned equity offerings (SEOs). SEOs receiving an SEC comment letter are associated with longer SEO registration periods. Furthermore, SEOs receiving an SEC comment letter that is publicly disclosed before the offer date are associated with larger offer price discounts. Issuers with poorer information environments are more likely to receive an SEC comment letter. Our findings are consistent with SEC scrutiny resulting in negative information being incorporated into the offer price, but only when the scrutiny is disclosed publicly and promptly.

Comment Letter on "CATALYZE: a deep learning approach for cataract assessment and grading on SS-OCT images".

SUMMARY We investigate when companies copy auditors on SEC comment letter correspondence and whether copying the auditor affects comment letter resolution. We find that companies are more likely to copy the auditor when there is a need for the auditor's expertise (i.e., the SEC's comment letter references an accounting topic). Copying the auditor is associated with quicker company responses to the SEC, and copying a more experienced auditor is associated with quicker SEC responses. Copying more experienced auditors is also associated with a greater (lower) likelihood that the comment letter is resolved through a revision (restatement). Finally, with respect to potential mechanisms, copying the auditor is associated with clearer company responses, more references to accounting authoritative guidance, more references to previous phone calls with the SEC, fewer requests for extensions, and higher audit fees. Overall, our results suggest that companies benefit from copying the auditor in comment letter responses. Data Availability: All data used in the study are publicly available from sources cited in the text. JEL Classifications: M42; M48.

The Securities and Exchange Commission (SEC) reviews firms’ financial reports and issues comment letters to ensure compliance with applicable disclosure and accounting requirements. We explore the nature, determinants, and consequences of SEC comment letters that refer to information disclosed in voluntary earnings conference calls. Using hand-collected data, we document that the SEC primarily references these voluntary disclosures to illustrate insufficiencies and, less commonly, inconsistencies in mandatory filings across a wide range of topics. These letters are more likely to be issued when filing reviews are more complex, SEC staff are less resource constrained, and for firms with more institutional investors and analysts. Conference call–related comments tend to occur during higher-quality review processes and require greater remediation costs than other comments. The SEC’s use of call disclosures also leads to more pronounced changes in firms’ subsequent mandatory filings, particularly when the firm indicates agreement with SEC comments. However, we observe a mixed effect on the overall information environment, consistent with possible unintended consequences for the quality of firms’ voluntary disclosures. This paper was accepted by Suraj Srinivasan, accounting. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.02065 .

Purpose Previous research on accounting standard setting has focused on changes, with little research into how and why accounting standards persist. This study, therefore, focuses on the 2022 decision of the International Accounting Standards Board (IASB) to retain the existing impairment-only approach for its goodwill accounting standard. To understand the persistence of the standard, this study aims to investigate how the IASB addressed the same accounting issue in two different periods by examining changes in the interested parties’ arguments. It classifies and compares various arguments in the comment letters (CL) to consider the IASB’s legitimacy in terms of evidence-based policymaking. Design/methodology/approach This study classifies the interested parties’ arguments on goodwill accounting into several types. The classification enabled us to systematically compare the arguments in the two sets of CL submitted to the IASB’s official documents on goodwill accounting published in 2002 and 2020. In addition to categorizing arguments, this study conducted a text coding analysis for CL to supplement the results of categorization. Findings According to this study’s comparative analysis, the majority of CL were in favor of amortizing goodwill, and there was no conspicuous change in the overall proportion of various arguments in the two periods. Moreover, while conceptual arguments in the CL accounted for a larger proportion than those based on real economic effects, when focusing on the arguments relying on general accounting concepts, there was roughly an even split between arguments in favor of amortizing goodwill and those in favor of the impairment-only approach. These findings can be interpreted as one of the reasons why the IASB decided to retain the existing standards in 2022. Research limitations/implications This study’s comparative analysis through the detailed categorization of arguments in the CL provides a plausible interpretation of the IASB’s decision to retain the current standard for goodwill accounting, especially as those responsible for the accounting standard setting tend to place emphasis on the general conceptual arguments in their standard-setting process. The authors propose this viewpoint as a useful basis for theorizing the dynamics of accounting standards in the current trend of evidence-based standard setting. Originality/value This study focuses on the IASB’s accounting standard setting for goodwill over two periods, comparing stakeholder arguments to analyze the persistence of accounting standards. This study’s categorization of conceptual arguments as general and topic-specific is potentially valuable for future research into the politics of accounting standard setting.

Purpose Based on the rational choice model of lobbying, this paper examines the level of involvement of all major stakeholder groups in the development of the EU Corporate Sustainability Reporting Directive (CSRD) and their level of support (or opposition) through comment letters submitted on the public consultation of the Non-Financial Reporting Directive (NFRD). Design/methodology/approach The analysis is based on the publicly available document containing stakeholders’ comments letters. Respondents to the consultation were grouped according to the variables reflecting their characteristics. A content analysis of the feedback provided by the respondents to the public consultation has been developed. The analysis focuses on the issues the respondents discussed and the level of agreement or disagreement with the questions posed by the consultation related to potential changes to the NFRD. Findings The findings show significant differences between different respondents’ groups based on country, size, entity and type, regarding both how much they discussed the issues included in the consultation’s thematic sections and the support for changes to the NFRD. Practical implications The study highlights how different stakeholder groups engage with regulatory formal consultations based on their proximity to regulation and organisational characteristics. These findings suggest that policymakers should design consultation processes and regulatory requirements with proportionality in mind, ensuring inclusive engagement across a diverse range of stakeholders. Social implications The active involvement of stakeholders, such as users and non-business entities, in the sustainability reporting consultation underscores the societal relevance of sustainability disclosures. Broadening stakeholder engagement in formal public consultation processes can enhance the legitimacy and public accountability of EU sustainability policy. Originality/value While lobbying behaviour through comment letters has long been investigated in financial accounting literature, relatively little research, to the best of the authors’ knowledge, addresses public consultation processes in the context of sustainability accounting and reporting.

This study investigated China's participation in the International Accounting Standards Board's (IASB) standard‐setting process. The study examines comment letters related to 192 IASB issues spanning 2001–2021 and identifies two pivotal moments in Chinese constituents’ involvement in the IASB standard‐setting process. The rate of response and diversity of contributors from China increased substantially after 2006. However, since 2010, China's participation through comment letter writing has been declining. Additionally, as the International Financial Reporting Standards’ (IFRS) convergence process progressed in China, Chinese constituents exhibited a growing interest in the early stages of the IASB's standard‐setting process and the overall development of the IFRS. The complementary analysis comparing direct participation through comment letters with indirect involvement via the Ministry of Finance highlights distinct participation patterns in contrast to other jurisdictions and underscores the limitations of relying solely on comment letter analysis to assess China's lobbying efforts. By examining Chinese constituents’ participation in the IASB's standard‐setting process, the study advances our understanding of how emerging jurisdictions, such as China, engage with IFRS development. Additionally, it contributes to the existing literature on lobbying activities related to the IFRS by emphasizing the complexity of participation patterns and the necessity of considering both direct and indirect forms of participation.

ABSTRACT This study examines whether the supervisory effect of comment letters spills over to non‐commented firms through common auditors and whether ESG performance mitigates this risk. Using 13,080 Chinese firm‐year observations, we find that auditors become increasingly prudent to non‐commented clients after others receive comment letters, leading to increased audit fees, delayed reports and higher frequency of going concern opinions. Strong ESG performance mitigates this heightened prudence. Additional analysis shows that comment letter characteristics influence auditor behaviour, and spillover effects enhance non‐commented firms' audit quality. Our study underscores the regulatory spillover of comment letters and ESG's role in risk mitigation.

ABSTRACT How sophisticated are retail investors in monitoring their holdings? We answer this question by examining Robinhood investors’ trades around the US Securities and Exchange Commission (SEC) comment letter (CL) disclosures. We focus on CLs because, compared to periodic filings, CL disclosures are unscheduled (high search cost) and unstandardized with a significant variation in their content (high processing cost). We find that CLs attract Robinhood investors’ attention, as evidenced by a significant abnormal Google search volume index around CLs disclosure, particularly around more severe CLs. The number of Robinhood investors holding a stock reduces after a firm receives more severe CLs in anticipation of the future decline in stock prices. Our results are (i) robust to addressing the endogeneity concern; (ii) robust to controlling for concurrent information from insider sales, short‐selling activity, Twitter, press, analysts, and other concurrent CLs; and (iii) do not reflect Robinhood investors relying on heuristics in analyzing CLs’ content. Our evidence suggests that retail investors are sophisticated in processing CL disclosures as part of their portfolio monitoring activities.

SYNOPSIS Prior literature shows that the receipt of an SEC comment letter strains the auditor-client relationship by increasing the likelihood of a change in auditor. This paper examines this result by investigating whether an auditor’s involvement in responding to comment letters mitigates this effect. Although comment letters are frequently associated with financial reporting issues, clients and auditors may perceive the issues and blame for issues differently, thereby creating friction in the auditor-client relationship. By involving auditors in responding to comment letters, clients demonstrate a better working relationship with their auditor, which may lead to auditor continuance. This study indicates that although auditor switching increases after receipt of an accounting-related comment letter, auditor involvement in responding to the SEC reduces the likelihood of an auditor change in the following period. This suggests that auditor involvement in comment letter responses strengthens the auditor-client relationship.

SEC Comment Letters on Mutual Fund Disclosures

The Impact of Financial Report Comment Letters on Bond Pricing: Evidence from China

The IFRS for SMEs is a simplified framework of financial reporting standards designed specifically for small and medium-sized enterprises (SMEs). The IASB issued this standard to cater to entities that do not have public accountability but still need to prepare high-quality financial statements for internal and external stakeholders. This study focuses on comprehending and appreciating the crucial influence of stakeholders in developing accounting standards. Their involvement is not merely a factor but an essential element of the standard-setting process. We will conduct a qualitative analysis of comments letters from the First Comprehensive Review of IFRS for SMEs, acknowledging the importance of each contribution. The analysis will also delve into the relationships between the IASB and the stakeholders, aiming to uncover insights into stakeholder influences and IASB independence during the review process. The IASB has been criticized for not considering the perspectives of users and owners in establishing requirements, particularly in the IFRS for SMEs. The analysis reveals a high similarity between Europe and other Global organisations, mainly due to their European origins. However, responses from Oceania show the lowest similarity, mainly due to limited comment letters. Professional organizations, Accounting Regulatory Bodies, and Accounting, audit, and consultant firms share common concerns, while Insurance Agencies show lower similarity due to differing concerns and vocabulary. The IASB should consider the interests of all stakeholders, but the lack of clarity on revision criteria may undermine its legitimacy and transparency. Therefore, it is crucial to provide clear and transparent revision criteria to ensure universally accepted standards and enhance stakeholder confidence in the process.

ABSTRACT Non-GAAP financial measures are disclosed by companies to provide information to investors and other stakeholders beyond what is required by traditional GAAP-based financial statements. Although these voluntary non-GAAP measures may provide useful information for decision-making, their limited regulation and standardization may mislead investors. This case exposes students to several aspects of non-GAAP measures. First, students will be able to locate, compare, and analyze differences in GAAP and non-GAAP measures in various disclosure mediums and subsequently describe the benefits and disadvantages in different contexts. Next, using EDGAR, students will be able to locate and discuss specific issues regulators have taken with these disclosures by analyzing SEC comment letters. Finally, students will be able to compare the usefulness of GAAP and non-GAAP measures using the FASB conceptual framework. Overall, this case provides students with an increased understanding of how companies use differential financial disclosures in the broader financial reporting environment.

In this study, we explore the expanded role of chief financial officers (CFOs) in facilitating corporate disclosure by examining how their accounting expertise influences the resolution process of Securities and Exchange Commission (SEC) comment letters issued on 10-K reports. Using CFO professional profile data collected extensively through EDGAR, Lexis-Nexis, and several online searches, we find that CFO accounting expertise improves the resolution of SEC comment letters by reducing the remediation costs and the likelihood of unfavorable resolution outcomes. We also show that the effect of CFO accounting expertise is more pronounced when the CFO’s involvement in the resolution process is greater, and the SEC comment letter includes comments on accounting topics. Our findings are robust to a battery of robustness tests. Overall, this study highlights the importance of CFOs’ role and function in regulatory compliance. JEL codes : G14; G30; M40; M41; M48

As a part of the post-publication peer review, readers can send comment letters to a journal on the articles it has published. Such letters critically comment on the content of the related article. They allow the readers to see the messages of the article in the context of the criticisms, give the authors of the concerned article an opportunity to clarify their stand, help initiate scientific dialogues, and, with consequent corrections or retractions, even help perfect the scientific literature. Comment letters should be relevant, scientifically foolproof, short, focused, straightforward, balanced, and polite.

With the in-depth development of Internet technology, financial media has increasingly become an important role in capital market supervision. This paper empirically examines the corporate governance effect of the media from the perspective of non-punitive supervision. The research finds that, first, the media coverage of the company will cause the exchange to pay attention to and issue stock exchange comment letters; second, the trigger effect of media coverage is more obvious when the information environment is poor. Under the background of the implementation of post-supervision in China, this paper helps people understand the governance effect of the media in the process of exchange supervision, and provides suggestions for the regulatory authorities to formulate relevant policies.

Synopsis The research problem Prior empirical research on constituents’ participation in setting international accounting standards has focused on their decision whether or not to participate directly in the standard setter’s due process. However, because that focus neglects constituents’ choice between direct participation and indirect participation via an intermediary, we investigated the determinants of using an indirect method of participation as a substitute for, or in complement to, direct participation. Institutional setting We exploited the European institutional setting, where the European Financial Reporting Advisory Group (EFRAG) serves as an intermediary for indirect participation in the due process of the International Accounting Standards Board (IASB). The test hypotheses Based on rational choice theory, we hypothesized that constituents from EFRAG’s inner circle and from countries with smaller capital markets, lower English-language proficiency, and/or an accounting value profile more different from that embodied in International Financial Reporting Standards (IFRS) have a higher probability of choosing to use indirect participation. Adopted methodology Using a sample of 7,766 comment letters (CLs) from 2005–2017, we focused on individual constituents and traced their use of indirect participation (i.e., sending CLs to EFRAG) versus direct participation (i.e., sending CLs to the IASB). We employed logistic regression models using the methods of participation as dependent variable to test our hypotheses. Controlling for factors used in prior research on direct participation, we estimated a primary model for the full sample of constituents and a secondary model with firm-specific variables for the subsample of constituents classified as corporate preparers. Findings and implications We found strong evidence that the constituents’ membership in EFRAG’s inner circle is positively related, and capital market size in the constituents’ home countries is negatively related, to choosing to use indirect participation. Country-level English-language proficiency and differences in the accounting value profile in relation to IFRS also determine the choice of participation method. Our findings suggest that a preference for indirect participation relates to the barriers to using direct participation. We provide initial evidence of a neglected aspect of Sutton’ s ( 1984 ) rational choice model and implications for EFRAG’s role as an intermediary.

Abstract This study investigates the impact of comment letter reviews on reporting quality in terms of financial restatements, using comment letters from the Chinese market between 2013 and 2020. The baseline results indicate that although receiving a comment letter increases the next year's (year t + 1) restatements, it reduces later years' (year t + 2 onwards) restatements. Moreover, this effect is more pronounced among firms with lower external auditor quality, poorer information transparency, and those located in less marketized provinces. The mechanism analyses show that comment letter reviews improve financial reporting quality because of deterrent effects in the form of increased litigation risk.

PurposeThis paper aims to provide empirical evidence on formal stakeholder participation (or “lobbying”) in the early phase of the International Sustainability Standards Board’s (ISSB’s) standard-setting.Design/methodology/approachDrawing on a rational-choice framework, this paper conducts a content analysis of comment letters (CLs) submitted to the ISSB in response to its first two exposure drafts (published in 2022) to investigate stakeholder participation across different groups and jurisdictional origins. The analyses examine participation in terms of frequency (measured using the number of participating stakeholders) and intensity (measured using the length of CLs).FindingsPreparers and users of sustainability reports emerge as the largest participating stakeholder groups, while the accounting/sustainability profession participates with high average intensity. Surprisingly, preparers do not outweigh users in terms of participation frequency and intensity; and large preparers outweigh smaller ones in terms of participation intensity but not participation frequency. Internationally, stakeholders from countries with a private financial accounting standard-setting system participate more frequently and intensively than others. In addition, country-level economic wealth and sustainability performance are positively associated with more participating stakeholders.Practical implicationsThis study is of interest for organizations and stakeholders involved in or affected by standard-setting in the field of sustainability reporting. The finding of limited participation by investors and from developing countries suggests the ISSB take actions to enhance the voice of those stakeholders.Social implicationsThe imbalances in stakeholder participation that were found pose potential threats to an important aspect of the input legitimacy of the ISSB’s standard-setting process.Originality/valueTo the best of the authors’ knowledge, this paper is the first to explore stakeholder participation by means of CLs with the ISSB in terms of frequency and intensity.