Discussion of The Financial and Market Effects of the SEC Accounting and Auditing Enforcement Releases

The paper under discussion explores the Securities and Exchange Commission's enforcement function related to the issuance of Accounting and Auditing Enforcement Releases (AAERs). It encompasses a rich description of the nature of the problems resulting in AAERs, the resulting sanctions against the companies and their auditors, and the market reactions to the disclosures associated with the SEC enforcement actions. The paper contributes to the accounting literature by providing a thorough description of SEC enforcement cases related to accounting and auditing issues. One appendix summarizes 58 AAERs about the companies used in the market tests. This discussion combines issues we found to be important as well as areas discussed by conference participants. We organize our discussion into the following areas: the paper's motivation, information disclosure issues, empirical tests, and the paper's conclusions. 2. Motivation The authors motivate the paper as a descriptive analysis of the SEC's use of AAERs in its enforcement program. Conference participants indicated some confusion about the SEC's purposes in issuing AAERs. The paper stresses an AAER's importance for anticipating emerging reporting issues; we believe that this motivation has been overemphasized.