Reviewing the SEC's Review Process: 10-K Comment Letters and the Cost of Remediation

2013 ◽  
Vol 88 (6) ◽  
pp. 1875-1908 ◽  
Author(s):  
Cory A. Cassell ◽  
Lauren M. Dreher ◽  
Linda A. Myers
Keyword(s):  
Review Process ◽  
Fair Value ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Additional Time ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Comment Letters ◽  
Time Required ◽  
The Cost

ABSTRACT: Securities and Exchange Commission (SEC) comment letters provide independent and timely feedback on the clarity of disclosures and on the extent to which filings comply with Generally Accepted Accounting Principles and SEC reporting regulations. We investigate factors that affect the probability of receiving a 10-K comment letter, the extent of comments received, and the cost of remediation. We find that in addition to factors explicitly stated to increase SEC scrutiny in Section 408 of the Sarbanes-Oxley Act, low profitability, high complexity, engaging a small audit firm, and weaknesses in governance are positively associated with the receipt of a comment letter, the extent of comments, and the cost of remediation. The probability that the comment letter results in a restatement is higher for smaller companies and for companies engaging a small audit firm. We also provide evidence that comments relating to accounting issues result in higher remediation costs, largely due to the additional time required to resolve comments relating to classification issues and fair value issues. Our findings should be of interest to stakeholders who use SEC comment letters to assess disclosure quality and reporting compliance, and to managers and other stakeholders impacted by costs associated with the SEC's review process. Data Availability All data used in the study are publicly available from the sources cited in the text.

Do Former Audit Firm Partners on Audit Committees Procure Greater Nonaudit Services from the Auditor?

2012 ◽  
Vol 88 (1) ◽  
pp. 297-326 ◽  
Author(s):  
Vic Naiker ◽  
Divesh S. Sharma ◽  
Vineeta D. Sharma
Keyword(s):  
Audit Committee ◽  
Auditor Independence ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Audit Committees ◽  
Future Research ◽  
Corporate Boards ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Nonaudit Services

ABSTRACT: To address potential threats to auditor independence, the Sarbanes-Oxley Act of 2002 (SOX) requires the audit committee to pre-approve nonaudit services (NAS) procured from the auditor. However, the presence of a former audit firm partner (FAP) affiliated with the current auditor on the audit committee could undermine the audit committee's due diligence over the NAS pre-approval process. To alleviate such concerns, the Securities and Exchange Commission approved a three-year “cooling-off” period for appointing audit firm alumni as independent directors. Our analyses show that the presence of both affiliated and unaffiliated FAPs on audit committees does not lead to greater NAS procured from the auditor; rather, FAPs reduce NAS procured from the auditor. Moreover, NAS decline significantly following the appointment of FAPs to the audit committee. Further tests suggest the three-year cooling-off period may not be warranted and deserves further investigation. Our study raises important implications for regulators, policy makers, corporate boards, and future research. Data Availability: Data are publicly available from sources identified in the text.

The Impact of SEC Disclosure Monitoring on the Uncertainty of Fair Value Estimates

2015 ◽  
Vol 91 (2) ◽  
pp. 349-375 ◽  
Author(s):  
Daniel A. Bens ◽  
Mei Cheng ◽  
Monica Neamtiu
Keyword(s):  
Fair Value ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Market Uncertainty ◽  
Market Participants ◽  
Comment Letters ◽  
Value Reporting ◽  
The Impact ◽  
Level 2

ABSTRACT We investigate the role played by the Securities and Exchange Commission (SEC) in monitoring fair value disclosures in regulatory filings. Specifically, we assess whether SEC action via the issuance of fair value comment letters to registrants is followed by reductions in uncertainty about the firms' fair value estimates. We hypothesize that registrants that receive a comment letter focusing on their fair value disclosure policies experience reductions in investor uncertainty regarding their fair value estimates in the post-letter period, compared to the pre-letter period. Supporting this prediction, we find that for the periods after the fair value comment letters, the associations between Level 2 and 3 fair value assets and our measures of uncertainty are significantly reduced. These findings are robust to a series of tests designed to ensure that we do not simply capture general changes in market uncertainty levels for firms investing in these types of assets. Our study contributes to the further understanding of market participants' perception of fair value disclosures by investigating the role of SEC enforcement. This finding is important given recent criticisms of fair value reporting emanating from the highest levels of government and industry. Data Availability: Data are available from public sources identified in the paper.

The Impact of Client and Misstatement Characteristics on the Disposition of Proposed Audit Adjustments

2011 ◽  
Vol 30 (2) ◽  
pp. 103-124 ◽  
Author(s):  
Jennifer Joe ◽  
Arnold Wright, and ◽  
Sally Wright
Keyword(s):  
Financial Reporting ◽  
Internal Controls ◽  
Data Availability ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Time Period ◽  
Confidentiality Agreement ◽  
Financial Scandals ◽  
The Impact

SUMMARY We present evidence on the resolution of proposed audit adjustments during a unique time period, immediately following several U.S. financial scandals and surrounding calls for reforms in auditing and financial reporting, which culminated in the passage of the Sarbanes-Oxley Act (SOX). During this period, auditors and their clients faced increased scrutiny from investors and regulators. In addition, auditors had to contend with changed incentives, a new external regulator (i.e., the PCAOB), and upcoming annual PCAOB inspections. We extend prior studies by considering a broader range of factors potentially impacting the resolution of proposed adjustments, including the effect of client tenure, strength of internal controls, and repeat adjustments. Data on 458 proposed adjustments are obtained from the working papers of a sample of 163 audit engagements conducted during 2002 by a Big 4 firm. We find that 24.2 percent of proposed adjustments were subsequently waived. The results indicate audit adjustments are more likely to be waived for clients with whom the audit firm has had a longer relationship, although the pattern does not reflect favoring such clients. We also find that adjustments are more likely to be waived for repeat adjustments. Data Availability: Due to a confidentiality agreement with the participating audit firm the data are proprietary.

An Investigation of the Results of the Annual Review of Ineligibles and Non-Rehabilitants

1979 ◽  
Vol 10 (1) ◽  
pp. 32-34
Author(s):  
Paul Cooper ◽  
Reed Greenwood ◽  
Stephanie Davis
Keyword(s):  
Vocational Rehabilitation ◽  
Review Process ◽  
Research Effort ◽  
Fiscal Year ◽  
Annual Review ◽  
Cooperative Research ◽  
Ready Access ◽  
Time Required ◽  
The Cost

The annual review of ineligibles and non-rehabilitants is a mandatory study for all public vocational rehabilitation agencies to insure that all individuals are given ready access to the benefits of the program. In a cooperative research effort, three vocational rehabilitation agencies provided the data necessary for a study of the cost and effectiveness of the annual review process. As part of this study, the participating agencies provided data for each of their clients reviewed in Fiscal Year 1977. This data consisted of information· regarding the type of review, the outcome of the review process, and the amount of counselor time required to complete the review. The results of the study indicated that the annual review was not only ineffective but extremely costly in terms of counselor time as a technique for insuring benefits to eligible individuals.

scholarly journals Counting the cost of surgical training: perspective from a school of surgery

2010 ◽  
Vol 92 (2) ◽  
pp. 46-50 ◽  
Author(s):  
A Young ◽  
N Redfern ◽  
L Sher
Keyword(s):  
Medical Education ◽  
Clinical Supervision ◽  
Postgraduate Medical Education ◽  
Formal Training ◽  
Additional Time ◽  
Medical Education And Training ◽  
Hospital Doctors ◽  
Time Required ◽  
The Cost ◽  
And Training

It has long been acknowledged that hospital doctors train their juniors with only limited extra time or support and little formal training for their role. The introduction of job planning was intended to recognise formally the additional time needed for this and other activities and the new Postgraduate Medical Education and Training Board (PMETB) standards for trainers are intended to address the need for faculty development. If these Standards for trainers are to be achieved, regulators may need to provide clearer guidance to trusts about the time required in job plans to deliver the expected standard of educational and clinical supervision and other deanery and royal college educational roles.

Submit a Manuscript Quickly

Songings ◽  
2021 ◽  
Vol 1 (1) ◽  
pp. 29-29
Author(s):  
Anhuai Yu
Keyword(s):  
Peer Review ◽  
Review Process ◽  
Peer Review Process ◽  
Evidence Based ◽  
Editorial Office ◽  
Good For ◽  
Time Required ◽  
The Cost

Welcome and thank you for considering Songings to submit your manuscript. Since 2021, Evidence Based Communications (EBC) don’t use any peer-review systems, it is good for minimizing the time required for the submission and peer review process, and the cost of publication. You should directly submit your manuscript to the editorial office via email at [email protected] with proper preparations.

The Effect of Evidence Strength and Internal Rewards on Intentions to Report Fraud in the Dodd-Frank Regulatory Environment

2013 ◽  
Vol 32 (3) ◽  
pp. 87-104 ◽  
Author(s):  
Alisa G. Brink ◽  
D. Jordan Lowe ◽  
Lisa M. Victoravich
Keyword(s):  
Securities And Exchange Commission ◽  
Data Availability ◽  
Audit Committees ◽  
Monetary Incentives ◽  
Sarbanes Oxley ◽  
Evidence Strength ◽  
Internal Whistleblowing ◽  
The Impact ◽  
Internal Incentive ◽  
Reporting Intentions

SUMMARY: There are many unanswered questions and concerns regarding the consequences of the fraud whistleblowing environment created by the Sarbanes-Oxley (SOX) and Dodd-Frank Acts. While SOX requires audit committees to implement anonymous internal reporting channels, the Dodd-Frank Act offers substantial monetary incentives that encourage reporting to the Securities and Exchange Commission (SEC). To mitigate concerns that employees might bypass internal channels, some companies are considering offering internal whistleblowing incentives. However, it is unclear how internal incentives will affect employee whistleblowing behavior. We experimentally examine the impact of an internal incentive on employees' intentions to report fraud. Across treatments, we find a greater likelihood of reporting internally than to the SEC. Evidence strength interacts with the presence of an internal incentive such that SEC reporting intentions are greatest when evidence is strong and an internal incentive is present. When evidence is weak, the presence of an internal incentive decreases SEC reporting intentions. Data Availability: Data used in this study are available from the authors upon request.

scholarly journals Audit Firm Perspective on Audit Firm Rotation and Enhancing Independence: Evidence from PCAOB Comment Letters

2016 ◽  
Vol 11 (1) ◽  
pp. A22-A44
Author(s):  
L. Tyler Williams ◽  
W. Mark Wilder
Keyword(s):  
Audit Committee ◽  
Auditor Independence ◽  
Overwhelming Majority ◽  
Data Availability ◽  
Public Accounting ◽  
Accounting Firms ◽  
Audit Firm ◽  
Public Accounting Firms ◽  
Comment Letters ◽  
Alternative Solutions

SUMMARY This study examines practitioners' perspectives on audit firm rotation and alternative solutions to enhance independence in the audit industry as solicited by the PCAOB's “Concept Release on Audit Firm Rotation and Auditor Independence.” Accordingly, we synthesize the opinions found in comment letters of 15 American public accounting firms—eight of which are annually inspected by the PCAOB and seven of which are inspected tri-annually. Altogether, we find the firms generally offer homogenous rationale for opposition to audit firm rotation. However, most importantly, we note that the overwhelming majority of the alternative solutions offered by the firms to enhance the independence relationship between auditor and client lies with fortifying the audit committee. To that end, while regulators have generally attempted to strengthen independence by introducing regulation at the auditor level, our review indicates that perhaps a shift in regulatory philosophy is warranted—one that suggests progressing regulation at the client level. Data Availability: Publicly available.

Does Mandated Disclosure Induce a Structural Change in the Determinants of Nonaudit Service Purchases?

2011 ◽  
Vol 30 (2) ◽  
pp. 51-76 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Susan Parker, and ◽  
Gary F. Peters
Keyword(s):  
Structural Changes ◽  
Agency Cost ◽  
Auditor Independence ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Audit Committees ◽  
Managerial Ownership ◽  
Market Responses ◽  
Sarbanes Oxley ◽  
The Impact

SUMMARY We investigate the association between mandated fee disclosures and structural changes in the determinants of nonaudit services (NAS). The Securities and Exchange Commission (SEC) underscored the importance of understanding the impact of disclosures when the Auditor Independence Rules of 2000 explicitly relied on market responses to discipline NAS purchases. In contrast, the Sarbanes-Oxley Act of 2002 (SOX) relied upon prohibitions of NAS. Our findings suggest that market-based approaches were functioning prior to SOX prohibitions. We find that after the SEC mandated fee disclosures, NAS purchases become negatively associated with firms seeking financing and positively associated with managerial ownership. We also document a significantly smaller propensity for NAS purchases among larger firms, compared to a nondisclosure environment. Last, we find that mandated disclosures significantly increase the negative association between NAS purchases and effective audit committees. Collectively, our findings are consistent with mandated disclosures increasing agency cost incentives for limiting NAS purchases. Data Availability: The data are available from public sources.

Use of cold tolerant eucalyptus species as a partial replacement for southern mixed hardwoods

TAPPI Journal ◽  
2012 ◽  
Vol 11 (7) ◽  
pp. 29-35 ◽  
Author(s):  
PETER W. HART ◽  
DALE E. NUTTER
Keyword(s):  
Potential Method ◽  
The United States ◽  
Partial Replacement ◽  
Growth Time ◽  
Eucalyptus Species ◽  
Cold Tolerant ◽  
Hardwood Pulp ◽  
Time Required ◽  
The Cost ◽  
Operational Data

During the last several years, the increasing cost and decreasing availability of mixed southern hardwoods have resulted in financial and production difficulties for southern U.S. mills that use a significant percentage of hardwood kraft pulp. Traditionally, in the United States, hardwoods are not plantation grown because of the growth time required to produce a quality tree suitable for pulping. One potential method of mitigating the cost and supply issues associated with the use of native hardwoods is to grow eucalyptus in plantations for the sole purpose of producing hardwood pulp. However, most of the eucalyptus species used in pulping elsewhere in the world are not capable of surviving in the southern U.S. climate. This study examines the potential of seven different cold-tolerant eucalyptus species to be used as replacements for, or supplements to, mixed southern hardwoods. The laboratory pulping and bleaching aspects of these seven species are discussed, along with pertinent mill operational data. Selected mill trial data also are reviewed.

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