Does Financial Statement Comparability Facilitate SEC Oversight?*

Abstract

This study examines the impact of cross-firm financial statement comparability on regulatory oversight of accounting quality. Consistent with the notion that comparable accounting systems enhance regulators' ability to identify accounting deviations from financial reporting, we find that the likelihood that the SEC issues a comment letter on 10-K filings that have poor accounting quality increases with financial statement comparability. Further analysis reveals that the regulatory benefits from financial statement comparability are more salient when the SEC faces higher monitoring constraints in filing reviews. Overall, we provide novel evidence suggesting that higher financial statement comparability improves the efficacy of the SEC's oversight of accounting quality by reducing the information costs associated with cross-firm comparisons.

Auditors’ legal liability and client firms’ comparability: evidence from China

“…If the organizational form of audit firms has a stronger impact on the client portfolio than the supply of audit quality, we may not detect significant differences in clients' comparability between LLP and LLC auditors. Further, higher comparability enhances regulators' ability to identify discretionary accounting deviations (Nam and Thompson, 2022). This may also create disincentives for LLP auditors to improve clients' comparability.…”

“…Based on Lennox and Li (2012), if the organizational form of audit firms has a dominant effect on client portfolios and a minimal impact on audit quality, we may not detect significant differences in clients’ comparability between LLP auditors and LLC auditors. Further, Nam and Thompson (2022) find that the likelihood of the Securities and Exchange Commission (SEC) issuing a comment letter for aggressive accrual choices increases with earnings comparability and comparability helps the SEC detect severe accounting violations that necessitate restatements. These results suggest that having comparable peers enhances regulators’ ability to identify discretionary accounting deviations, which could create disincentives for LLP auditors to increase clients’ earnings comparability.…”

تقييم أثر الضائقة المالية للشركات على جودة التقارير المالية وقابليتها للمقارنة: دليل تطبيقي من البيئة المصرية

“…‫سبيؿ‬ ‫عمى‬ ‫وتشمؿ‬ ‫مختمفة‬ ‫سياقات‬ ‫في‬ ‫نة‬ ‫لممقار‬ ‫القابمية‬ ‫ائد‬ ‫فو‬ ‫اسع‬ ‫و‬ ‫نطاؽ‬ ‫عمى‬ ‫األدبيات‬ ‫ووثقت‬ ‫ال‬ ‫خفض‬ ‫مثاؿ؛‬ ‫تكمفة‬ ‫البيانات‬ ‫ومعالجة‬ ‫جمع‬ (Habib et al, 2020b;Nam & Thompson, 2023) ‫المعمومات‬ ‫تماثؿ‬ ‫عدـ‬ ‫مشكمة‬ ‫مف‬ ‫الحد‬ ‫و‬ ‫الشفافية‬ ‫تحسيف‬ ، (Peterson et al, 2015;Kim & Lim, 2017) ‫التنظيمية‬ ‫المخاطر‬ ‫مستوى‬ ‫خفض‬ ، (Babaei et al, 2021) ‫ة‬ ‫قدر‬ ‫يز‬ ‫تعز‬ ، ‫ة‬ ‫لمفتر‬ ‫األسيـ‬ ‫ائد‬ ‫عو‬ ‫المستقبمية‬ ‫باح‬ ‫األر‬ ‫عكس‬ ‫عمى‬ ‫الحالية‬ (Choi et al, 2019) ‫يف‬ ‫المدير‬ ‫وضبط‬ ، ‫ودقتيا‬ ‫اجعة‬ ‫المر‬ ‫كفاءة‬ ‫وتحسيف‬ ‫السيئة،‬ ‫األخبار‬ ‫حجب‬ ‫مف‬ (Zhang, 2018) ‫تأثير‬ ‫ليا‬ ‫أف‬ ‫كما‬ ، ‫المالية‬ ‫المعمومات‬ ‫وجودة‬ ‫المساىميف‬ ‫حقوؽ‬ ‫قيمة‬ ‫عمى‬ ‫إيجابي‬ (Babaei et al, 2021) . (Habib et al, 2013;Campa, 2015;Ranjbar & Amanollahi, 2018;Li et al, 2020;EL Deeb & Ramadan, 2020;Kurniawati & Panggabean, 2020;Choi et al, 2021, Oktrivina, 2022Viana Jr et al, 2022;Mukhtaruddin et al, 2022;Puspita et al, 2022;Wawo & Habbe, 2023;Sampurno et al, 2023;Wiratno et al (Nam & Thompson, 2023) ‫المشاركيف‬ ‫لدى‬ ‫اليقيف‬ ‫عدـ‬ ‫مف‬ ‫الحد‬ ‫في‬ ‫تيا‬ ‫قدر‬ ‫إلى‬ ‫باإلضافة‬ ، ‫الماؿ‬ ‫أس‬ ‫ر‬ ‫تكمفة‬ ‫وتخفيض‬ ‫الديوف‬ ‫سوؽ‬ ‫في‬ (Kim et al, 2013;Fang et al, 2016) . Kurniawati & Panggabean, 2020;Choi et al, 2021, Oktrivina, 2022Viana Jr et al, 2022;Mukhtaruddin et al, 2022;Puspita et al, 2022;Wawo & Habbe, 2023;Sampurno et al, 2023;Wiratno et al...…”