Long SEC Reviews - Are They a Red Flag?

SEC comment letters are regulatory reviews that aim at ensuring transparency, accuracy, and compliance in accounting and disclosure provided by publicly traded companies.

In cases where financial reports are unclear or deficient, the SEC may issue comments requesting that companies rectify the deficiencies. Academic literature frequently utilizes the number of comments in the conversation and the duration (number of days to address the comments) as metrics for assessing the significance of concerns raised by the SEC (e.g., Cunnigham and Leidner, 2022). While most comments are resolved within 40 to 50 days and through one or two rounds of comments, some inquiries remain unresolved for as long as a year.

Item 1B Unresolved SEC Comments of the 10-K filing requires that companies disclose comments that have been outstanding for at least 180 days before the fiscal year’s end. Notably, Item 1B disclosu…