Financial Reporting Risk Assessments: Identifying and Mitigating Risks Before the SEC Gets Involved

When preparing for an initial public offering (IPO), finance leaders understand that the SEC review process may result in comments and questions on their disclosures. What often comes as a surprise is just how much these comments can delay the offering, increase legal and accounting costs, and strain internal teams, especially when the issues relate to financial reporting risks that could have been addressed well before filing the first draft of the registration statement.

A robust financial reporting risk assessment is one of the most effective ways to identify potential problem areas early, allowing CFOs and CAOs to strengthen disclosures, refine reporting and disclosure processes, and reduce the likelihood of costly surprises during the comment letter process.

Why Financial Reporting Risks Are Amplified in an IPO

In a private company environment, some financial reporting risks, such as inconsistent accounting policies, vague footnote disclosures, or incomplete segment reporting, may never surface externally. In the public company world, those same weaknesses become visible to regulators, investors, and analysts.

Three factors amplify financial reporting risks in the IPO process:

• Accelerated Timelines – SEC filing deadlines and investor expectations mean that reporting teams have less time to fix errors or address deficiencies once they’re discovered and external auditors may also have less time to review before deadlines.
• Heightened Scrutiny – SEC staff reviews registration statements with a sharp eye for compliance with U.S. GAAP (some of which may not be applicable to a private company), SEC rules, and industry-specific guidance.
• Expanded Scope – Public company reporting covers not just historical financial statements but also pro forma information, MD&A disclosures, segment data, and executive compensation — each of which brings unique risk factors.

SEC’s Most-Frequent Comment Topics: What Recent Trends Reveal

Analysis of recent SEC comment letter data shows that:

• The most common focus areas include non-GAAP disclosures, MD&A, and segment reporting, which together account for a significant share of comments.
• Income tax disclosures and intangible assets/goodwill are trending upward as frequent sources of comments, while topics like debt have become less prevalent.
• Comment letter activity in 2024 and from the first half of 2025 has remained well above pre-pandemic levels, with smaller registrants (market caps under $700 million) often receiving a greater share of comments.
• Other notable areas of attention include risk factors, contingencies, climate-related disclosures, and internal control over financial reporting (ICFR) evaluations.
• The SEC often treats the comment letter process as a dialogue, seeking more context or explanation. A thorough, well-supported initial response can reduce the need for additional rounds of comments.

Why these insights matter: Aligning your risk assessment to the SEC’s current emphasis, like MD&A, non-GAAP measures, goodwill/intangible assets, taxes, and risk disclosures, minimizes the chance of regulatory pushback and delay.

Common Financial Reporting Risk Areas

Through our work with IPO-ready companies, we’ve observed that certain financial reporting areas tend to trigger SEC comments or require last-minute corrections. These include:

• Non-GAAP Measures – Inconsistent calculation, unclear reconciliation, or presentation that gives undue prominence can draw SEC scrutiny.
• MD&A Disclosures – Omission of known trends, inconsistent use of key metrics, or lack of discussion on liquidity and capital resources are high-risk areas.
• Segment Reporting – Incorrect identification of operating segments or inconsistent disclosures between MD&A and financial statements is a frequent comment area.
• Revenue Recognition – Complex arrangements, multiple performance obligations, or inconsistent application of ASC 606 can lead to questions.
• Pro Forma Financial Information – Errors in reflecting business combinations, debt refinancing, or other significant transactions in pro forma statements can delay review.
• Intangible Assets & Goodwill – Inadequate “early warning” disclosures about potential impairments or insufficient support for valuation assumptions are frequent comment topics.
• Risk Factors & Contingencies – Generic or boilerplate language, as well as failure to disclose company-specific risks or potential losses, is often challenged.

Identifying these risks early not only prevents comments but also positions the company to tell a clearer, more consistent story to the market.

The Anatomy of a Financial Reporting Risk Assessment

A well-structured financial reporting risk assessment for an IPO should follow a deliberate, methodical process. While each company’s circumstances are unique, the following framework provides a proven approach:

• Map the Reporting Landscape: Document the full scope of financial reporting obligations for the IPO — historical audited periods, interim financials, pro forma statements, and required footnotes. Include all relevant SEC regulations (e.g., Regulation S-X, Regulation S-K) and industry-specific rules.
• Identify High-Impact Risk Areas: Pinpoint reporting topics where the accounting guidance is complex, judgment-based, or historically inconsistent within the company. Consider changes in operations, transactions, or systems that may have introduced new risks. To help speed up response time to SEC comments, consider drafting responses to the anticipated SEC comments in high risk areas. Companies may want to preclear unusual or highly judgmental areas with the SEC ahead of any filings.
• Assess Current Processes and Controls: Evaluate whether your financial reporting processes, internal controls, and documentation practices are robust enough to withstand SEC and auditor scrutiny. Pay particular attention to new or unusual transactions.
• Perform a Disclosure Quality Review: Review draft disclosures for clarity, consistency, and completeness—not just compliance. The SEC often comments on unclear explanations, undefined terms, or metrics that lack context.
• Prioritize and Remediate: Develop an action plan to address the most significant risks well ahead of the first confidential submission. This might involve gathering additional data, refining accounting positions, or enhancing internal documentation.

Benefits of a Proactive Risk Assessment

The effort to perform a financial reporting risk assessment before the IPO process pays dividends in several ways:

• Reduced SEC Comment Rounds – Addressing risks early can shorten the review process, allowing the IPO timeline to stay on track. Preparing responses to anticipated comments from the SEC can shorten the response time and keep things on track.
• Lower Advisory Costs – Avoiding late-stage rewrites reduces legal, audit, and consulting expenses.
• Stronger Market Messaging – Accurate, consistent reporting builds investor confidence and reduces the risk of post-IPO restatements.
• Better Prepared Team – Reporting teams gain confidence knowing that potential problem areas have been addressed before they hit the SEC’s radar.

Real-World Example

Consider a technology company preparing for an IPO that had recently completed a series of acquisitions. A risk assessment identified that the company’s pro forma financial statements did not appropriately reflect the combined entity’s revenue recognition policies, leading to inconsistent treatment across periods. By addressing this before the first SEC filing, the company avoided what could have been a significant comment letter exchange and weeks of delay.

How CBIZ Advisory Can Help

At CBIZ Advisory, we work closely with CFOs and CAOs to conduct targeted financial reporting risk assessments tailored to the IPO process. Our team combines deep SEC reporting expertise with practical, hands-on experience preparing companies for public market scrutiny and has assisted 70+ clients through a successful IPO including some recent IPOs such as Figma, Omada Health and Hinge Health.

Our approach typically includes:

• Reviewing historical financials and proposed disclosures for high-risk areas.
• Benchmarking against peer filings to identify gaps and best practices.
• Coordinating with auditors and legal counsel to ensure alignment before filing.
• Advising on internal control enhancements to support reliable, timely reporting.

By partnering early in the IPO journey, we help companies reduce uncertainty, strengthen their public company readiness, and move through the SEC review process with greater confidence.

Final Thoughts

For finance leaders driving toward an IPO, the goal is not just to “pass” the SEC review, but to arrive there with confidence in the company’s story, numbers, and processes. A proactive financial reporting risk assessment transforms the SEC review from a reactive scramble into a confirmatory step, keeping the IPO timeline intact and protecting the company’s credibility in the market.