scholarly journals Influence of the Sarbanes-Oxley Act on Financial Reporting Quality: An Overview of EU Firms Cross-Listed in the USA

2021 ◽  
Author(s):  
Ujkan Bajra ◽  
Rrustem Asllanaj
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Publicly Traded ◽  
Publicly Traded Companies ◽  
Sarbanes Oxley ◽  
Novel Approach ◽  
The Us ◽  
The Usa

Abstract This paper investigate whether compliance with the Sarbanes–Oxley Act of 2002 (SOX) Sect. 302 (financial reporting) and 404 (internal controls) enhances financial reporting quality (FRQ). This study focuses on EU publicly traded companies that are cross-listed in the US markets. Using a novel approach with respect to operationalization of the SOX, the empirical research integrated into this paper advances the understanding of financial reporting quality for both practitioners and policymakers. The study argues that financial reporting quality increased after SOX entered into force but, notably, we find that FRQ improves with compliance with SOX302 but not with SOX404. Examination of the latter relationship at the subsection level also reveals that compliance with certain SOX requirements is not satisfactory. We find that three out of six subsections of SOX302 are directly associated with financial reporting, while subsections (1), (5) and (6) of SOX302 are not related with FRQ, indicating that the management team, albeit not entirely, provides a reliable financial reporting systems. We also find that compliance with some SOX404’s subsections has been relatively low (i.e. subsections (1) and (3) of SOX404)), suggesting that corporations have not established and are not maintaining suitable internal control systems over financial reporting.

Audit Partner Rotation and Financial Reporting Quality

2014 ◽  
Vol 33 (3) ◽  
pp. 59-86 ◽  
Author(s):  
Barri Litt ◽  
Divesh S. Sharma ◽  
Thuy Simpson ◽  
Paul N. Tanyi
Keyword(s):  
Financial Reporting ◽  
Rotation Period ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Novel Approach ◽  
Partner Change ◽  
Audit Partner Rotation ◽  
The U.S

SUMMARY: Audit partner rotation has received considerable attention globally and in the U.S. since the Sarbanes-Oxley Act of 2002 accelerated the rotation period from seven to five years and expanded the cooling-off period from two to five years. However, research on the effects of audit partner rotation on financial reporting quality in the U.S. is virtually non-existent, largely due to the absence of publicly available information on audit partners. Using a novel approach to determine audit partner rotation, we investigate the effect of rotation on financial reporting quality in the U.S. We find evidence of lower financial reporting quality following an audit partner change. Specifically, we find lower financial reporting quality during the first two years with a new audit partner relative to the final two years with the outgoing partner. We find the lower financial reporting quality to be more prevalent for larger clients. Further analyses suggest the initial year post-rotation presents audit challenges for Big 4 partners, which persist for at least three years for non-Big 4 partners. Audit challenges also appear greater for city-level non-industry specialist auditors and smaller audit offices. We discuss the implications of our results for regulators, policymakers, and the profession at large.

The Persistence in the Association between Section 404 Material Weaknesses and Financial Reporting Quality

2013 ◽  
Vol 33 (1) ◽  
pp. 93-116 ◽  
Author(s):  
Emma-Riikka Myllymäki
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Control Problems ◽  
Section 404 ◽  
Material Weakness ◽  
Sarbanes Oxley ◽  
Material Weaknesses ◽  
History Of

SUMMARY This study examines whether Sarbanes-Oxley (SOX) Section 404 material weakness (MW404) disclosures are predictive of future financial reporting quality. I find evidence that for companies with a history of MW404s, the likelihood of misstatements in financial information continues to be significantly higher for two years after the last MW404 report compared to companies without a history of reported MW404s. The magnitude of the effect decreases non-linearly with decreasing speed. The findings further imply that the reason for the misstatement incidences is the unacknowledged pervasiveness of control problems. In particular, it appears that in many cases, the future misstatements are unrelated to the MW types disclosed in the last MW404 report, suggesting that some MW types are unacknowledged and, hence, control problems are even more pervasive than what was identified. Overall, the findings of this study highlight the importance of discovering and disclosing material weaknesses in internal control over financial reporting.

scholarly journals Does Attestation of the effectiveness of Internal Control over Financial Reporting Discourage Earnings Management? Evidence from China

2018 ◽  
Vol 7 (4) ◽  
pp. 1
Author(s):  
Li Dang ◽  
Qiaoling Fang
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Reporting Quality ◽  
Financial Statements ◽  
Financial Reporting Quality ◽  
Chinese Government ◽  
Chinese Firms ◽  
Public Firms ◽  
Sarbanes Oxley

To improve financial reporting quality, the Chinese government issued the Basic Standard for Enterprise Internal Control in 2008 and other related guidelines/regulations in the following years (hereafter China SOX). The scope of China SOX is broader but similar to Section 404 of the Sarbanes-Oxley Act (SOX) in the U.S. Formal adoptions of China SOX requires management and external auditor’s report on the effectiveness of internal control over financial reporting (ICFR). A company’s ICFR, if effective, should provide reasonable assurance that the company’s financial statements are reliable and prepared in accordance with the applicable accounting standards. The purpose of this study is to investigate whether China external auditor attestation of ICFR discourage earnings management, an indicator of financial reporting quality. By analyzing a sample of Chinese public firms during 2011 to 2013, we find that: (1) Chinese firms that disclose audited ICFR reports exhibit lower earnings management than firms that do not; (2) Chinese firms that are mandated to disclose audited ICFR reports exhibit lower earnings management than firms that voluntarily disclose audited ICFR reports. Our empirical results seem to suggest that attestation of the effectiveness of ICFR discourages earnings management and therefore improve financial reporting quality. 

Auditor Reverse-Merger Expertise: Evidence from Chinese Reverse-Merger Companies

2017 ◽  
Vol 36 (4) ◽  
pp. 115-133 ◽  
Author(s):  
Juan Mao ◽  
Qin Jennifer Yin
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Publicly Traded ◽  
Regulatory Requirements ◽  
Financial Reports ◽  
Publicly Traded Companies ◽  
Reverse Mergers ◽  
Audit Fee ◽  
Reverse Merger

SUMMARY This study investigates if hiring auditors with Chinese reverse-merger expertise affected 182 Chinese companies that executed reverse mergers with U.S. shell companies from 2003 to 2011 to become U.S. publicly traded companies (Chinese reverse-merger companies, or CRM companies). We find that CRM companies that employ CRM-expert auditors pay higher audit fee premiums, and are more likely to up-list to national exchanges, when they are compared to CRM companies with non-CRM-expert auditors. Additional analyses suggest that clients of CRM experts also are more likely to file annual financial reports on time, but CRM-expert auditors are not associated with fewer misstatements in financial reporting or continued trading on national exchanges. This suggests that CRM-specialist auditors help clients navigate regulatory requirements for up-listing, but they do not achieve improved financial reporting quality.

scholarly journals Competitiveness In A Post Sarbanes-Oxley Economy And Its Impact On Small And Mid-Size Companies

2011 ◽  
Vol 8 (8) ◽  
Author(s):  
Martin Samuel ◽  
David Sabot ◽  
Peter DelPiano
Keyword(s):  
Stock Market ◽  
Financial Reporting ◽  
Internal Control ◽  
Publicly Traded ◽  
Publicly Traded Companies ◽  
Government Oversight ◽  
Sarbanes Oxley

With the increase in the number of people who had a stake in the Stock market coupled with 9/11 and Enron (which created a climate of uncertainty); a need was created for more assurance in the Stock market. Sarbanes-Oxley (SOX) was created to answer the need for accuracy and reliability of financial reporting. SOX imposed unprecedented close government oversight of publicly traded companies through rigid internal control of corporate processes.

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

2017 ◽  
Vol 92 (6) ◽  
pp. 187-212 ◽  
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.

scholarly journals Assessment of Government Internal Control Systems on Financial Reporting Quality in Ghana: A Case Study of Ghana Revenue Authority

2018 ◽  
Vol 10 (11) ◽  
pp. 40
Author(s):  
Wonder Agbenyo ◽  
Yuansheng Jiang ◽  
Prince Komla Cobblah
Keyword(s):  
Control Systems ◽  
Financial Reporting ◽  
Internal Control ◽  
Negative Impact ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Quality Reporting ◽  
The Impact

Internal control systems cannot be underestimated as it serves as the lifeblood of most institutions in terms of its imperative roles that it plays in both tangible and intangible assets of an organization. Internal control actions on quality financial report state positive goals more especially when all parties involved adhere to their duties; thus, making the quality of financial reporting comparable, understandable, relevant, and reliable. In this regard, this study investigated the impact of government internal control systems on financial reporting quality in Ghana using Ghana Revenue Authority as the case study. Specifically, the study examined the nature and quality of financial reporting and the impact of government internal control systems on financial reporting quality. Both quota and simple random sampling techniques were used to select fifty (50) persons as the sample size of the study. Questionnaires were used to obtain data. The correlation matrix was used to examine the relationship between government internal control systems and financial reporting quality. The study finds out that contrary to apriori expectation sign monitoring as an element of internal control system has a negative impact on the financial quality reporting but was however statistically significant. The study also revealed that with a unit increase in the collection performance, the financial reporting quality of GRA will improve. The study recommended that the government should ensure that the internal control systems are well monitored and regulated. 

scholarly journals ONE FINANCIAL REPORTING GLOBAL LANGUAGE: THE ULTIMATE GOAL?

2017 ◽  
Vol 5 (1) ◽  
Author(s):  
Amelia Limijaya
Keyword(s):  
Financial Reporting ◽  
Accounting Standards ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
International Accounting Standards ◽  
Political Aspect ◽  
Accounting Standard ◽  
The Us ◽  
Global Language ◽  
Accounting Standard Setting

This article aims to analyse the extent to which international accounting standards is applied and whether it is the ultimate goal. Up until the end of 2016, approximately there are 84% of the 149 jurisdictions analysed which require IFRS for all or most domestic publicly accountable entities. This may indicate that we are not that much further from having a single set of globally-accepted accounting standards. However, there is more to financial reporting than just accounting standards alone, such as the political aspect of accounting standard-setting, translation issues surrounding IFRS adoption, the US position and the complexity of financial reporting. Improving financial reporting quality needs more than just having global accounting standards, rather, it is also essential to consider the preparers’ incentives and other institutions surrounding the firm. Stakeholders need to broaden the perspective when viewing financial reporting, so that it will not be focused merely on accounting standards alone.

scholarly journals Does Control Self-Assessment Influence Financial Reporting Quality?

2020 ◽  
Vol 5 (4) ◽  
pp. 70-76
Author(s):  
Hiroshi Uemura
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Negative Relationship ◽  
Reporting Quality ◽  
Audit Fees ◽  
Internal Controls ◽  
Financial Reporting Quality ◽  
Control Environment ◽  
Self Assessment ◽  
Positive Effects

The aim of this study is to examine the effect of control self-assessment (CSA) on financial reporting quality by using CSA as a proxy of monitoring quality. CSA has an important feature that allows the employees themselves to become involved in the assessment of internal controls’ effectiveness. Moreover, CSA has two important monitoring functions. First, it can add value to internal auditing. Second, because all employees of operational units participate in the assessment of internal controls in CSA, that control environment is expected to be mature. The investigation of this study used data from 3,517 Japanese firms listed on the First Section, Second Section, Mothers, and JASDAQ of the Tokyo Stock Exchange. The result of 2SLS regression shows that CSA adoption has a negative relationship with the number of financial restatements and audit fees, and therefore, I conclude that CSA has positive consequences for financial reporting quality. This result indicates that the internal monitoring mechanism that continuously monitors internal control over financial reporting (ICFR) effectiveness and in which all employees participate has some positive effects on financial reporting quality. There are two reasons for this result. First, employees have easier access to negative information concerning ICFR effectiveness than outsiders and can share that information with the internal personnel in charge of monitoring (e.g., internal auditors). Moreover, CSA is expected raise an entity’s awareness of ICFR, that is, the control environment of ICFR components is made into an environment that prevents and detects impropriety in the accounting process. Keywords: Control

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