Does audit quality differ between Big 4 and Second-Tier auditors in small and mid-sized IPOs? Evidence from SEC comment letters

Stefan Slavov and Yan Luo

Managerial Auditing Journal, 2026, vol. 41, issue 5, 838-868

Abstract: PurposeAuditors play a crucial role in a company’s initial public offering (IPO). This study aims to examine whether IPO audit quality, as reflected in regulatory scrutiny of IPO registration statements, differs between Big 4 and Second-Tier auditors in small and mid-sized IPOs.Design/methodology/approachAs every registration statement must be reviewed by the Securities and Exchange Commission (SEC), the authors use the receipt of and responses to accounting-related SEC comments on the registration statement (i.e. “accounting comments”) as measures of IPO audit quality. The authors examine the number and types of accounting comments on the registration statement and the effectiveness of firms’ accounting comment remediation.FindingsThe authors find that Big 4 clients receive significantly fewer initial accounting comments than clients of Second-Tier auditors. They also address these comments in significantly fewer days, over fewer comment rounds, and are more likely to resolve them within a single round. Collectively, the results suggest that IPOs audited by Big 4 firms exhibit stronger initial compliance with SEC reporting standards and greater effectiveness in remediating accounting-related issues when they are raised.Originality/valueTo the best of the authors’ knowledge, this study is the first to examine whether auditor type is associated with the outcomes of the SEC’s registration statement review process. These insights contribute to the literature on audit quality in the IPO setting by examining IPO audits through SEC comment letters and highlighting the implications of auditor type for SEC review outcomes. These insights will be valuable to key IPO stakeholders, including management, boards, audit committees, underwriters, venture capital investors and regulators.

Keywords: Audit quality; Big 4 auditors; Initial public offering (IPO); Registration statement; SEC comment letters; Second-Tier auditors (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-06-2025-4856

DOI: 10.1108/MAJ-06-2025-4856

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