An Opinion On Independent Auditors Opinions Of Substantial Doubt: A SOX-2002 Efficiency Evaluation

Given the recent events involving allegations of ethical misconduct by corporate executives and oversight neglect from the auditing community, the government was motivated to implement national reform to minimize the continued threat of corporate malfeasance. Due to the severity of these corporate scandals, Congress mandated and the President signed into law the Sarbanes-Oxley Act of 2002 (SOX-2002) to affect sweeping corporate disclosure and financial reporting reform to thwart continued scrupulous activities. In light of these events, the motivation of this study is to examine the effects of SOX-2002 in empowering independent auditors to provide unbiased opinions of an entity’s ability to remain as a going concern. The uniqueness of this study is that it attempts to determine if substantial doubt opinions signal bankruptcy greater than the chance occurrence of these events. If true, then these early warnings could be used to minimize the costs of bankruptcy. This study suggests that these opinions do signal bankruptcy filings greater than chance, which supports the position of auditor empowerment in a post-SOX-2002 period.

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An Assessment Of The Impact Of The Sarbanes-Oxley Act On The Investigating Violations Of The Foreign Corrupt Practices Act

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v6i10.2476 ◽

2011 ◽

Vol 6 (10) ◽

Author(s):

Karen T. Cascini ◽

Alan DelFavero

Keyword(s):

Financial Reporting ◽

Font Size ◽

Foreign Corrupt Practices Act ◽

Unethical Conduct ◽

Corporate Scandals ◽

Corporate Executives ◽

Sarbanes Oxley ◽

The Impact

During the late 1990s and early 2000s, a plethora of corporate scandals occurred. Due to these corporate debacles, corporate executives have been placed under fire. In response to such unethical conduct with regard to internal practices and financial reporting, legislation has been passed in order to ensure that corporations conduct their business in an ethical manner. The purpose of this paper is to assess the connection between the Foreign Corrupt Practices Act of 1977 (FCPA) and the Sarbanes-Oxley Act of 2002 (SOx), to determine whether SOx has influenced the FCPA’s investigative violation activities by examining the number of such investigations since the passage SOx. This paper also addresses specific cases of violations of anti-corruption laws and compares SOx and the FCPA on violation penalties.

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Fraud Specialists On Independent Audits

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v4i7.2686 ◽

2011 ◽

Vol 4 (7) ◽

Author(s):

James A. Tackett ◽

Fran M. Wolf ◽

Gregory A. Claypool

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Fraud Detection ◽

Internal Controls ◽

Font Size ◽

Fraudulent Financial Reporting ◽

Background Checks ◽

Sarbanes Oxley ◽

Independent Auditors ◽

Accounting Software

The recent audit failures involving Enron, WorldCom, et al., have left the accounting profession and governmental regulators scrambling to find better methods of detecting and preventing fraudulent financial reporting. Congress passed the Sarbanes-Oxley Act of 2002 (SOX) which requires companies to report on the operating effectiveness of their internal controls over financial reporting.  Additionally, the independent auditor is required to assess and report on the effectiveness of their client’s internal controls, and they must attest to management’s internal control assessment.  Notably absent from SOX is a requirement that independent auditors must employ fraud specialists in their independent audits of SEC filers. This study examines the benefits and costs associated with requiring the use of fraud specialists on independent audits of SEC filers.  Fraud specialists have expertise better attuned to fraud detection not ordinarily possessed by regular auditors.  First, the narrow but deep perspective of the fraud specialist enables them to find fraudulent activity that would be missed by regular auditors.  Second, unlike regular auditors, fraud specialists employ methodologies that are effective in the presence of management collusion.  They are more highly skilled at interviewing potential witnesses and fraud suspects and are trained in recognizing deception.  Third, fraud specialists are better trained in the use of antifraud technology, methods, and computerized forensic accounting software.  Fourth, fraud specialists have superior investigative skills and can conduct covert examinations, access restricted databases, conduct background checks, and locate hidden assets better than regular auditors.  Finally, they understand the legalities of gathering evidence of fraud and can operate without violating the rights of potential witnesses and fraud suspects. Qualitative analysis demonstrates that utilizing fraud specialists on independent audits has positive net benefits to financial reporting.  Recommendations are made regarding the types of fraud detection/deterrence skills and techniques that would be beneficial to independent auditors.

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Board Composition, Structure, And Financial Performance: An Update

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v23i4.1377 ◽

2011 ◽

Vol 23 (4) ◽

Cited By ~ 1

Author(s):

Kevin Bosner

Keyword(s):

Meta Analysis ◽

Future Research ◽

Corporate Boards ◽

Font Size ◽

Corporate Scandals ◽

Sarbanes Oxley ◽

Fortune 100 ◽

Composition Structure ◽

Work Done

In 1998, a meta-analysis of over 60 empirical research studies concluded that there was no demonstrable evidence that either Board of Directors structure or the duality of CEO/Board Chairman roles significantly impacted corporate performance.  This article looks at research done since that time, in light of Enron and other corporate scandals as well as the Sarbanes-Oxley Act of 2002 and the increasing diversity of corporate boards.  Four additional studies, including follow-up work done by the authors of the 1998 meta-analysis, are compared and contrasted. In addition, the results of direct research on twenty Fortune 100 companies is presented. Finally, suggestions for future research in terms of both topic and methodology are provided, along with this author’s learnings from the project.

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Predicting Bankruptcy After The Sarbanes-Oxley Act Using Logit Analysis

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v10i9.7192 ◽

2012 ◽

Vol 10 (9) ◽

pp. 521

Author(s):

Wikil Kwak ◽

Xiaoyan Cheng ◽

Jinlan Ni

Keyword(s):

Financial Reporting ◽

Bankruptcy Prediction ◽

Logit Analysis ◽

Font Size ◽

Portfolio Decisions ◽

Sarbanes Oxley ◽

Data Prediction ◽

Firm Bankruptcy ◽

One Year ◽

Shed Light

Our study proposes firm bankruptcy prediction using logit analysis after the passage of the Sarbanes-Oxley (SOX) Act using 2008-2009 U.S. data. The results of our logit analysis show an 80% (90% with one year before bankruptcy data) prediction accuracy rate using financial and other data from the 10-K report in the post-SOX period. This prediction rate is comparable to other data mining tools. Overall, our results show that, as compared to the prediction rates documented by other bankruptcy studies before SOX, firm bankruptcy prediction rates have improved since the passage of SOX. Our findings shed light on the benefits of SOX by providing evidence that legislation makes the financial reporting more informative. This study is important for regulators to implement public policy. Investors may be interested in our findings to better assess company risk when making portfolio decisions.

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Is There Transparency In Auditor Change Disclosures?

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v23i3.1391 ◽

2011 ◽

Vol 23 (3) ◽

Cited By ~ 3

Author(s):

Thomas G. Calderon ◽

Emeka Ofobike ◽

John J. Cheh

Keyword(s):

Corporate Governance ◽

Financial Reporting ◽

Internal Control ◽

Primary Objective ◽

Audit Committees ◽

Font Size ◽

Sarbanes Oxley ◽

Big 4 ◽

Auditor Change ◽

Required Disclosures

In this paper, we examine the reasons disclosed in a small representative sample of Form 8-Ks for switching auditors. We classify auditor switches in terms of changes from big-4 to other big-4, big-4 to non-big-4, non-big-4 to big-4 and non-big-4 to non-big-4. Our primary objective is to assess compliance with the required disclosures for auditor changes and to reflect on the implications for corporate governance. This line of research is important in light of the requirements of SEC Regulation S-K 304 and recent calls for greater transparency in financial reporting, particularly after Sarbanes-Oxley.  Our research shows that companies use boilerplate language and adopt a check-the-box approach to compliance with Regulation S-K 304. Contrary to the spirit and intent of corporate governance, their disclosures generally lack transparency and offer little or no insight into the underlying reasons for auditor changes. One of the clearest patterns is that several auditor changes are preceded by such reportable events as going concern uncertainties and material internal control deficiencies that often lead to financial statement restatements. Even so, many companies are less than forthright in the language used to disclose such events. Thus, we conclude that the implied objective of auditor change regulations is not being fulfilled.  In general, neither auditors nor clients appear to take the auditor change disclosure requirements seriously. It is vital that the PCAOB, SEC, and the audit committees take note of this weakness in auditor change regulation.

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The Goals and Promise of the Sarbanes–Oxley Act

The Journal of Economic Perspectives ◽

10.1257/jep.21.1.91 ◽

2007 ◽

Vol 21 (1) ◽

pp. 91-116 ◽

Cited By ~ 189

Author(s):

John C Coates

Keyword(s):

Financial Reporting ◽

Internal Controls ◽

Public Institution ◽

Section 404 ◽

Public Companies ◽

The Public ◽

Corporate Scandals ◽

Sarbanes Oxley ◽

Public Company

The primary goal of the SarbanesOxley Act was to fix auditing of U.S. public companies, consistent with its full, official name: the Public Company Accounting Reform and Investor Protection Act of 2002. By consensus, auditing had been working poorly, and increasingly so. The most important, and most promising, part of SarbanesOxley was the creation of a unique, quasi-public institution to oversee and regulate auditing, the Public Company Accounting Oversight Board (PCAOB). In controversial section 404, the law also created new disclosure-based incentives for firms to spend money on internal controls, above increases that would have occurred after the corporate scandals of the early 2000s. In exchange for these higher costs, which have already fallen substantially, SarbanesOxley promises a variety of long-term benefits. Investors will face a lower risk of losses from fraud and theft, and benefit from more reliable financial reporting, greater transparency, and accountability. Public companies will pay a lower cost of capital, and the economy will benefit because of a better allocation of resources and faster growth. SarbanesOxley remains a work in progress -- section 404 in particular was implemented too aggressively - but reformers should push for continued improvements in its implementation, by PCAOB, rather than for repeal of the legislation itself.

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Enriching AIS Courses With SOX Compliance Activities

AIS Educator Journal ◽

10.3194/1935-8156-5.1.1 ◽

2010 ◽

Vol 5 (1) ◽

pp. 1-24 ◽

Cited By ~ 2

Author(s):

Joann Segovia ◽

Carol M. Jessup ◽

Marsha Weber ◽

Sheri Erickson

Keyword(s):

Corporate Governance ◽

Financial Reporting ◽

Internal Controls ◽

Accounting Profession ◽

Investor Confidence ◽

Reporting Requirements ◽

Sarbanes Oxley ◽

Audit Firms ◽

Significant Change

A very significant change to the accounting profession occurred in 2002 when the Sarbanes-Oxley Act of 2002 (SOX) was enacted. This legislation had a significant impact on corporations and their audit firms. The objective was to improve corporate governance and its quality of financial reporting to improve investor confidence. This paper provides instructors with a background on SOX and suggests readings and activities that reflect the requirements of SOX as it relates to the AIS environment and the analysis of internal controls. These activities can strengthen students' understandings of how corporations respond to the various reporting requirements of this Act.

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Financial Reporting Regulation and the Reporting of Pro Forma Earnings

Accounting Horizons ◽

10.2308/acch.2006.20.1.39 ◽

2006 ◽

Vol 20 (1) ◽

pp. 39-55 ◽

Cited By ~ 67

Author(s):

Gary M. Entwistle ◽

Glenn D. Feltham ◽

Chima Mbagwu

Keyword(s):

Financial Reporting ◽

Primary Objective ◽

Public Confidence ◽

Strong Impact ◽

Policy Makers ◽

Generally Accepted Accounting Principles ◽

Pro Forma Earnings ◽

Sarbanes Oxley ◽

Evidence For Policy ◽

Pro Forma

A primary objective of the Sarbanes-Oxley Act is to bolster public confidence in the U.S. capital markets. The SEC aims to achieve this objective in part by regulating the use of alternate earnings measures (colloquially referred to as “pro forma” earnings) that differ from generally accepted accounting principles. This paper examines whether firms change their reporting practice in response to pro forma regulation. Specifically, it examines whether the use, calculation, and presentation of pro forma measures by S&P 500 companies changes between 2001 and 2003. We document three significant shifts in pro forma reporting in this period. First, the proportion of firms reporting pro forma earnings declines from 77 to 54 percent. Second, by 2003, pro forma is used in a less biased manner. Not only is the proportion of firms using pro forma earnings to increase reported income smaller than in 2001, but also the magnitudes of these increases are reduced. Third, in 2003, firms present pro formas in press releases in a much less prominent and less potentially misleading manner. These results suggest a strong impact of the recent regulation of pro forma reporting and provide important empirical evidence for policy makers.

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Did the 1999 NYSE and NASDAQ Listing Standard Changes on Audit Committee Composition Benefit Investors?

The Accounting Review ◽

10.2308/accr-51716 ◽

2017 ◽

Vol 92 (6) ◽

pp. 187-212 ◽

Cited By ~ 17

Author(s):

Seil Kim ◽

April Klein

Keyword(s):

Financial Reporting ◽

Audit Committee ◽

Research Question ◽

Reporting Quality ◽

Audit Committees ◽

Financial Reporting Quality ◽

Difference In Differences ◽

Listed Firms ◽

Sarbanes Oxley ◽

Independent Audit

ABSTRACT In December 1999, the SEC instituted a new listing standard for NYSE and NASDAQ firms. Listed firms were now required to maintain fully independent audit committees with at least three members. In July 2002, the U.S. Congress legislated these standards through the Sarbanes-Oxley Act. Our research question is whether all investors benefited from the 1999 new rule. Using both an event study and a difference-in-differences methodology, we find no evidence of higher market value or better financial reporting quality resulting from this rule.

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Unfunded Public Employee Health Care Benefits and GASB No. 45

Accounting Horizons ◽

10.2308/acch.2007.21.3.245 ◽

2007 ◽

Vol 21 (3) ◽

pp. 245-263 ◽

Cited By ~ 10

Author(s):

Elizabeth K. Keating ◽

Eric S. Berman

Keyword(s):

Health Care ◽

Financial Reporting ◽

Full Range ◽

Financial Reports ◽

Employment Benefits ◽

Care Plans ◽

Advantages And Disadvantages ◽

Government Accounting ◽

The Government ◽

The Impact

The Government Accounting Standards Board (GASB) recently released Statement No. 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions and its companion Statement No. 43 for pooled stand-alone health care plans, which will profoundly affect American governmental finance. The goal of this article is to encourage governments to consider carefully a full range of options in funding and restructuring other post-employment benefits (OPEB). This article will review Statement No. 45's potential impact on governments and review existing disclosures in financial reports as well as bond offering statements. The article will discuss the statement's impact on budgets and governmental operations, including collective bargaining. Funding options under Statement No. 45 will be detailed, including the advantages and disadvantages of irrevocable trusts and OPEB bonds. The article will also discuss the impact of Medicare Part D subsidies received by governments, as well as the bond rating implications of policy decisions surrounding OPEB. As the largest government entities are just now implementing GASB Statement No. 45, estimates of the magnitude of unfunded OPEB liabilities are limited as are the strategies likely to be adopted to cover these obligations. This article offers a summary of the unfunded OPEB liabilities reported by states and major cities and suggests some measures for assessing the ability of these entities to address these costs.

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