State Sponsors of Terrorism Disclosure and SEC Financial Reporting Oversight

49 Pages Posted: 2 Jun 2020

See all articles by Robert Hills

Robert Hills

Pennsylvania State University

Matthew Kubic

University of Texas at Austin

William J. Mayew

Duke University - Fuqua School of Business

Date Written: May 4, 2020

Abstract

We examine whether SEC effort to review state sponsors of terrorism (SST) disclosure negatively influences financial reporting oversight. Using comment letter inquiries about SST to measure effort, we find the likelihood that the SEC fails to identify a financial reporting error increases when comment letters reference SST. Consistent with SST disclosure review crowding out financial reporting oversight, comment letters referencing SST are less likely to mention accounting, non-GAAP, and MD&A issues. These effects are unique to SST as we find references to non-SST issues complement financial reporting oversight. Data obtained through a Freedom of Information Act request reveals a temporal shift in the occupational mix of SEC reviewers towards (away from) lawyers (accountants) that coincides with an increased focus on SST. Path analysis reveals that accountants (lawyers) are more (less) likely to detect errors and comment on financial reporting topics, with an indirect path through SST exacerbating these effects.

Keywords: Comment Letters, Financial Reporting Oversight, Independence, SEC, Terrorism

Suggested Citation

Hills, Robert and Kubic, Matthew and Mayew, William J., State Sponsors of Terrorism Disclosure and SEC Financial Reporting Oversight (May 4, 2020). Available at SSRN: https://ssrn.com/abstract=3592694 or http://dx.doi.org/10.2139/ssrn.3592694

Robert Hills

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States

HOME PAGE: http://https://directory.smeal.psu.edu/rwh5494

Matthew Kubic

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

William J. Mayew (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7781 (Phone)
919-660-7971 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/mayew.htm

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