Does Auditor Involvement Expedite SEC Comment Letter Resolution?

52 Pages Posted: 3 Apr 2019

See all articles by Ryan Ballestero

Ryan Ballestero

The University of Texas at Austin

Jaime J. Schmidt

University of Texas at Austin

Date Written: January 31, 2019

Abstract

The remediation of Securities and Exchange Commission (SEC) comment letters can impose significant costs on companies. This study examines whether auditor involvement in the SEC comment letter process expedites comment letter resolution. Such a finding would indicate that auditors add value outside of the annual financial statement audit. We measure auditor involvement by identifying whether the audit partner is copied on SEC correspondence. First, we document that auditor involvement is more likely when the SEC’s comment letter relates to one or more accounting issues. Then, we show that comment letters that copy the partner, especially a partner with greater experience, have reduced time to resolution. In particular, we provide evidence suggesting that copying the audit partner reduces the amount of time it takes the company to respond to a SEC comment letter and copying a more experienced partner reduces the SEC’s response time to the company. We also find that copying more experienced partners is associated with clearer responses to the SEC and shorter times to reach full resolution. Our findings indicate that auditors often add value outside of the financial statement audit, while likewise expanding the understanding of the relationship between partner attributes and financial reporting outcomes.

Keywords: SEC comment letters; audit partners; audit quality

JEL Classification: M41, M42, M48

Suggested Citation

Ballestero, Ryan and Schmidt, Jaime J., Does Auditor Involvement Expedite SEC Comment Letter Resolution? (January 31, 2019). Available at SSRN: https://ssrn.com/abstract=3350730 or http://dx.doi.org/10.2139/ssrn.3350730

Ryan Ballestero (Contact Author)

The University of Texas at Austin ( email )

208-420-5672 (Phone)

Jaime J. Schmidt

University of Texas at Austin ( email )

Austin, TX 78712
United States

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