Auditor Expertise in the SEC Review Process: Evidence from IPO Registrations

Abstract

Practice suggests auditors provide extensive audit-related services in initial public offering (IPO) registrations, especially in helping IPO firms to achieve the initial regulatory compliance in accounting and financial reporting. In this paper, I investigate whether auditor IPO expertise measured at the audit office level is associated with how efficiently an IPO registration will proceed through the review process by the Securities and Exchange Commission (SEC). Using a sample of U.S. IPOs audited by Big 4 audit firms, I find that the initial registration statement attracts a lower extent of accounting comments from the SEC when auditor IPO expertise is higher. Further, I find that IPO firms with greater auditor IPO expertise resolve the given comments with a lower extent of follow-up comments and in fewer review rounds. Lastly, I find that auditor IPO expertise is negatively associated with the duration of the SEC review process. Overall, the results suggest that auditors play an important role in navigating their IPO clients through the SEC review process, and IPO expertise improves an auditor’s ability to perform this role.