The SEC reviews all public companies every few years, and companies with large market capitalizations, material restatements, or market volatility receive more frequent oversight. These days, it’s nearly automatic to receive comments during the IPO process or in your first few post-IPO filings. The scope of SEC review can range from 20 or more comments on a variety of topics in an IPO to a single comment on a Form 10-K regarding a specific issue. Legal compliance comments tend to be less frequent and easier to deal with than accounting comments, which often require significant analysis of technical accounting rules, second guessing of judgments, or even revision of financial statements.
One major risk in the SEC comment process is that your company may be required to restate your financials from a previous year. Another risk is that the SEC could ask you for a more detailed analysis — now or in the future — than your current processes and systems are designed to capture. There is plenty of risk in the filing process overall because of the inherent potential for error from inaccuracy and misrepresentation. Restatement is not only your company’s acknowledgement that you got something wrong, it’s also conceding that you didn’t realize you did.