Does Financial Statement Comparability Facilitate SEC Oversight?

We examine the effect of cross-firm financial statement comparability on the SEC’s oversight of firms’ financial reporting quality through its comment letter process. We find that the probability the SEC issues a comment letter to a firm increases when the firm’s accounting is more comparable to its peer firms, consistent with the notion that cross-firm comparable financial reporting lowers the SEC’s information processing costs. Moreover, firms with lower accounting quality are more likely to receive a comment letter only when the firms’ financial statement comparability is high, suggesting that comparability enhances the SEC’s ability to identify poor accounting quality. Further analysis reveals that the role of financial statement comparability in SEC oversight is more salient when monitoring resources are limited. Overall, our results suggest that higher financial statement comparability improves the SEC’s ability to evaluate and oversee firms’ financial reporting quality.