Regulators are expected to allocate their attention based on risk, materiality, and potential non-compliance. However, recent research suggests that even regulatory oversight is not immune to human bias.
In a fascinating study, Lorien Stice-Lawrence examines how the U.S. Securities and Exchange Commission (SEC) allocates its attention across firms. Using more than 16 million SEC downloads of corporate filings from the EDGAR database, the study finds that companies whose names appear earlier in the alphabet receive significantly more regulatory attention than firms appearing later.
Importantly, the research shows that alphabetical order is unrelated to fraud risk, financial reporting quality, or other indicators of regulatory concern. Yet firms at the beginning of the alphabet are more likely to be reviewed, while those at the end often receive less timely attention. The findings suggest that SEC employees, like all humans, may rely on cognitive shortcuts when working with lists and large amounts of information.
For internal auditors, the study offers an important reminder: oversight processes are ultimately performed by people. Whether reviewing risk registers, audit universes, or issue trackers, the way information is organized can influence where attention is directed. Organizations should therefore remain aware of potential biases embedded in seemingly neutral processes.
The broader lesson is that effective governance requires not only managing organizational risks but also understanding the human factors that shape monitoring and decision-making.
The full article, SEC Attention, A to Z by Lorien Stice-Lawrence, is published in Contemporary Accounting Research (CAR) and can be accessed here: https://doi.org/10.1111/1911-3846.70057