Critical Audit Matters and SEC Filing Review

Abstract

This study explores the alignment between auditors' critical audit matters (CAMs) and the issues raised in SEC comment letters. CAMs highlight areas involving significant auditor judgement, whereas SEC comment letters address concerns related to compliance and the quality of financial disclosure. When deficiencies are identified, the SEC issues comment letters requesting clarification or additional information, a resolution process that reflects investor priorities. We find that SEC comment letters are more likely to reference the same financial statement note numbers referenced in CAMs. Additionally, we document strong associations between the accounting topics addressed in SEC comment letters and those disclosed in CAM reports. Furthermore, firms exhibiting higher uncertainty sentiment in CAMs are more likely to receive SEC comment letters on related issues. Our results support the informational validity and credibility of CAMs, suggesting that these reports highlight salient financial reporting issues that are relevant to investors.