Audit Research after Sarbanes-Oxley

2005 ◽  
Vol 24 (s-1) ◽  
pp. 5-30 ◽  
Author(s):  
Mark L. DeFond ◽  
Jere R. Francis
Keyword(s):  
Audit Quality ◽  
Scientific Evidence ◽  
Academic Research ◽  
Securities And Exchange Commission ◽  
Institutional Changes ◽  
Compelling Evidence ◽  
Negative Consequences ◽  
High Profile ◽  
Sarbanes Oxley ◽  
Accounting Scandals

The scrutiny auditing received following Enron's failure and the accounting scandals at Worldcom and other companies provides compelling evidence that auditing matters and is important. What is unclear, however, is whether auditing was sufficiently “broken” in the first place to warrant the radical reforms and changes effected by the Sarbanes-Oxley Act of 2002 (SOX). While there have been some high profile corporate failures and accounting scandals, the number of demonstrated audit failures as evidenced by successful litigation or U.S. Securities and Exchange Commission (SEC) sanctions is quite small and approaches an annual failure rate of close to zero. In addition, our interpretation of the academic research suggests that many of the “solutions” embodied in SOX are not only unlikely to solve the profession's alleged problems; they may well have serious unintended negative consequences. So the disconnect is large between the scientific evidence on audit quality and institutional changes premised on the assumption that auditing is broken. This paper attempts to stimulate research into some of the important questions implicitly raised by SOX regarding the audit profession's potential failings. An outline of our primary observations and suggestions are presented in the paper's Introduction.

scholarly journals Public Accountants’ Perceptions Of The Acceptability Of Earnings Management Practices Through The Employment Of GAAP In The Post-Sox Period

2010 ◽  
Vol 26 (1) ◽  
Author(s):  
John E. McEnroe
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Font Size ◽  
Generally Accepted Accounting Principles ◽  
Sarbanes Oxley ◽  
Accounting Scandals ◽  
Audit Opinions ◽  
Certification Requirements

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">Over fifteen years ago, Martens and McEnroe (1992) conducted a behavioral study involving earnings management through the use of Generally Accepted Accounting Principles (GAAP). Their findings indicated that auditors issued unqualified audit opinions on those financial statements and perceived little risk to litigation as a result. A decade later they conducted a similar study (Martens and McEnroe 2002) with the expectation that increased attention to earnings management by then chairman of the Securities and Exchange Commission (SEC), Arthur Levitt, would reduce auditors’ perceptions that the letter of GAAP is in itself an aegis or “safe harbor” against litigation. Although the authors found that auditors had become more conservative, they still issued unqualified opinions on financial statements in which transactions were reported in their form rather than their substance. Given the accounting scandals of Enron and WorldCom, among others, and the enactment of the Sarbanes-Oxley Act (SOX) in 2002, especially with its officers’ certification requirements, it was posited that auditors would exhibit a much more conservative approach than in either of the two previous studies. The results indicate that although auditors are more conservative than in the 1992 study, they still allow clients to engage in earnings management practices through the use of GAAP by issuing unqualified audit opinions on their financial statements. <strong style="mso-bidi-font-weight: normal;"></strong></span></span></p>

Investors’ Expectations of the Improvement in the Credibility of Audit Opinions following PCAOB Inspection Reports with Identified Deficiencies

2010 ◽  
Vol 10 (1) ◽  
pp. 36-56 ◽  
Author(s):  
Jesse C. Robertson ◽  
Richard W. Houston
Keyword(s):  
Public Confidence ◽  
Audit Opinion ◽  
Outreach Programs ◽  
High Profile ◽  
Perceived Credibility ◽  
Sarbanes Oxley ◽  
Accounting Scandals ◽  
Audit Firms ◽  
Public Company ◽  
Audit Opinions

ABSTRACT: Following high-profile accounting scandals (e.g., Enron), Congress passed the Sarbanes-Oxley Act, which established the Public Company Accounting Oversight Board (PCAOB). The PCAOB conducts regular inspections of audit firms and issues inspection reports that describe audit deficiencies identified during the inspections. One purpose of these reports is to improve public confidence in auditor credibility. We conduct a between-subjects experiment to provide initial evidence concerning investors’ perceptions of audit opinion credibility following PCAOB inspections. While we find an overall increase in perceptions of the credibility of future audit opinions, the degree to which perceptions increase is a function of three salient characteristics of PCAOB reports. Specifically, we find that investors anticipate more (less) improvement in the credibility of future opinions when: (1) inspections contain high (low) severity deficiencies; (2) firms respond to the reports with concessions (denials); and (3) for small (large) firms. Further, investors’ assessment of the credibility of the firm’s response to the PCAOB report is higher for concessions than denials; response credibility fully mediates the effect of response type (concession or denial) on the perceived improvement in the credibility of future opinions. Therefore, the inspections may be a useful tool for improving the perceived credibility of audit opinions under certain conditions. Implications include the possibility that firms should consider carefully the nature of their responses and the PCAOB should consider establishing outreach programs to investors to educate them about its regulatory role.

Recent Developments at the Securities and Exchange Commission: Academic Contributions and Opportunities

2007 ◽  
Vol 21 (3) ◽  
pp. 313-323 ◽  
Author(s):  
Bjorn N. Jorgensen ◽  
Cheryl L. Linthicum ◽  
Andrew J. McLelland ◽  
Mark H. Taylor ◽  
Teri Lombardi Yohn
Keyword(s):  
Financial Reporting ◽  
Stock Options ◽  
Academic Research ◽  
Accounting Standards ◽  
Standard Setting ◽  
Securities And Exchange Commission ◽  
Sarbanes Oxley ◽  
Recent Developments ◽  
Key Issues

In recent years, the Securities and Exchange Commission (SEC) has grown in size and scope. The implementation of Sarbanes-Oxley (SOX) and the globalization of accounting standards have increased the SEC's workload and brought forth important questions regarding the development and application of accounting and auditing standard setting and regulation. This paper identifies key issues of importance to the SEC including record levels of restatements, SOX implementation, the backdating of stock options, increased use of fair-values in financial reporting, adoption of IFRS by numerous non-U.S. registrants, and foreign deregistration. The article highlights the contribution of academic research as it relates to SEC speeches and rulemaking, drawing upon experience of 2005–2006 SEC academic fellows.

Auditor Tenure and the Timeliness of Misstatement Discovery

2017 ◽  
Vol 93 (2) ◽  
pp. 315-338 ◽  
Author(s):  
Zvi Singer ◽  
Jing Zhang
Keyword(s):  
Natural Experiment ◽  
Audit Quality ◽  
Client Engagement ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Sarbanes Oxley ◽  
Auditor Change ◽  
Negative Effect ◽  
Extended Analysis ◽  
Arthur Andersen

ABSTRACT Using the timeliness of misstatement discovery as a proxy for audit quality, we examine the association between audit firm tenure and audit quality in a setting that alleviates the endogeneity problem endemic to this line of research. We find that longer audit firm tenure leads to less timely discovery and correction of misstatements, which is consistent with a negative effect of long auditor tenure on audit quality. In addition, using the non-voluntary auditor change following the demise of Arthur Andersen in 2002 as a natural experiment, we show that the misstatements of its former clients were discovered faster than those of comparable companies that retained their auditors throughout the misstatement. This finding speaks to the benefit of a fresh look by a new auditor. An extended analysis shows that longer auditor tenure also leads to misstatements of greater magnitudes, and that the Sarbanes-Oxley Act has mitigated, but not eliminated, the negative effect of long auditor tenure. Last, we show that the negative association between auditor tenure and timely discovery of misstatements is mainly present in the first ten years of an audit engagement. Our study has implications for regulators who continue to express concern regarding lengthy auditor-client engagement. JEL Classifications: K22; K23; L51; M41; M42; M48.

Does Audit Committee Disclosure of Partner-Selection Involvement Signal Greater Audit Quality?

2021 ◽  
Author(s):  
Jimmy F. Downes ◽  
Michelle A. Draeger ◽  
Abbie E. Sadler
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Selection Process ◽  
Partner Selection ◽  
Analyst Forecasts ◽  
Securities And Exchange Commission ◽  
Audit Committees ◽  
Voluntary Disclosures ◽  
Level Of Involvement ◽  
Selection Of

We investigate whether audit committees use voluntary disclosures to signal the committees’ higher level of involvement in the audit partner-selection process, which contributes to higher levels of audit quality. Audit committees more involved in the partner-selection process should ensure the selection of a more rigorous partner. We test this conjecture by first identifying partners new to audit engagements. We then compare audit quality for companies whose audit committees disclose involvement in the selection of the new partner to those without this disclosure. We find that this disclosure is positively associated with audit quality (measured using discretionary accruals, misstatements, and meeting consensus analyst forecasts by a very small margin). Our results are more salient for complex companies and those with powerful audit committees. These findings highlight that audit committees use their disclosures to signal involvement in the partner-selection process and are relevant to the Securities and Exchange Commission.

Sport league website: an effective marketing communication tool for corporate sponsors

2017 ◽  
Vol 18 (3) ◽  
pp. 314-327 ◽  
Author(s):  
Doyeop Kim ◽  
Matthew Walker ◽  
Jun Heo ◽  
Gi-Yong Koo
Keyword(s):  
Academic Research ◽  
Future Research ◽  
Consumer Attitude ◽  
Communication Tool ◽  
Content Type ◽  
High Profile ◽  
Sport League ◽  
Sports Sponsorship ◽  
Website Interactivity ◽  
Main Effects

Purpose Although high-profile sport league website sponsorships have increased in popularity over the last decade, academic research on the topic has not kept pace, resulting in little knowledge of ways to improve the effectiveness of this sponsorship type. This paper aims to discuss this issue. Design/methodology/approach The current study examined the influence of three website-related variables (i.e. website interactivity, website fit, and website credibility), while controlling for a sponsor-related variable (i.e. sponsor familiarity), on consumer attitude toward the sponsor ad and willingness to click on its banner ad. Hierarchical multiple regression analyses indicated three main effects. Practical implications are discussed with limitations and suggestions for future research. Findings This study found three important things. First, website interactivity played an important role in attitude toward the ad and willingness to click on the banner ad. Second, website fit influenced attitude toward the ad and willingness to click on the banner ad. Third, website credibility influenced attitude toward the ad. Originality/value The findings suggest that in order to maximize online sports sponsorship outcomes, companies must keep in mind that the interactivity between the web users and the site should be regarded as the most pragmatic result which could come from the online sports sponsorship territory.

scholarly journals A RETROSPECTIVE STUDY ON EVALUATION OF CAESAREAN SECTION RATE USING THE ROBSON’S 10 GROUP CLASSIFICATION IN SARDAR PATEL MEDICAL COLLEGE, BIKANER

2020 ◽  
Vol 4 (6) ◽  
Author(s):  
Sudesh Agrawal ◽  
Virendar Singh Rawat
Keyword(s):  
Caesarean Section ◽  
Scientific Evidence ◽  
Caesarean Section Rate ◽  
Tertiary Care ◽  
Group Classification ◽  
Health Concern ◽  
International Studies ◽  
Negative Consequences ◽  
Tertiary Care Centre ◽  
Pregnant Females

Introduction : Despite the lack of scientific evidence indicating any substantial maternal and perinatal benefits from increasing caesarean section rates, most of the studies are showing that higher rates could be linked to negative consequences in maternal and child health, still caesarean rates continues to increase worldwide, particularly in middle and high income countries, and have become a major and controversial public health concern. Therefore, we conducted this study to analyse the LSCS rate in the institute, to classify the indications of LSCS as per RTGCS and to find out strategy to decrease the prevalence of lower segment caesarean section. Material & Methods : This is a retrospective hospital based study at tertiary care centre. Data collection of one thousand pregnant females who delivered by caesarean section from the period of January 2018 onwards was assessed for the study. There are six parameters as per Robson’s classification to classify all pregnant females for caesarean section. Entire information was entered in Microsoft excel sheet and analysis were done to decrease caesarean section rate. Results : In the present study, a total of 1000 pregnant women delivered by caesarean section was taken from January 2018 onwards. The total number of deliveries during this study period was 2919 and the overall caesarean section rate was 34.25%. Most of the patients belonged to Robson’s group 1,2&5 which contributed to 65.6% to total. Conclusion :  The overall CSR in the study is 34.25% which is high as compared to international studies, contribution of repeat CS is high. It is important that efforts to reduce the overall CS rate should focus on reducing the primary CS rate. More analytical studies based on Robson’s 10-group classification system are needed locally, to evaluate the indications of CS within each group.  

Credit Rating Agencies in Capital Markets: A Review of Research Evidence on Selected Criticisms of the Agencies

2007 ◽  
Vol 22 (3) ◽  
pp. 469-492 ◽  
Author(s):  
Carol Ann Frost
Keyword(s):  
Credit Rating ◽  
Conflicts Of Interest ◽  
Securities And Exchange Commission ◽  
Future Research ◽  
Minor Role ◽  
Credit Rating Agencies ◽  
Regulatory Oversight ◽  
Rating Agencies ◽  
Accounting Scandals ◽  
A Minor

This study assesses the validity of widespread criticisms of the large, “nationally recognized” credit rating agencies (CRAs). The accounting scandals of 2000-02, in particular the highly publicized failure of Enron in December 2001, led many to question their competence and the value of their ratings. This paper evaluates important criticisms of the CRAs discussed in a recent Securities and Exchange Commission (SEC) staff report by using evidence from empirical research studies, and suggests many promising subjects for future research. The analysis given in this paper, and the results of the suggested research (when available), should be of particular interest to lawmakers and regulators who are responsible for determining whether and to what extent the credit rating industry should be subject to statutory and regulatory oversight. Although little rigorously gathered empirical evidence supports the criticisms, many issues remain unresolved. Powerful tests related to potential conflicts of interest and alleged unfair practices are exceptionally difficult to design, and the alleged deficiencies of rating agencies' disclosure practices have yet to be analyzed. Finally, many criticisms are based on subjective benchmarks that are difficult to quantify and open to question. To date, however, accounting researchers have played only a minor role in the debate. Because they are well-versed in such areas as disclosure analysis, capital market tests, and the operation of financial intermediaries and external auditors, these researchers potentially have much to add in this regard.

China’s “Cancer Villages”: The Social, Political, and Economic Contexts of Pollution

2017 ◽  
Author(s):  
Anna Lora-Wainwright
Keyword(s):  
Qualitative Research ◽  
Case Studies ◽  
Scientific Evidence ◽  
Minor Role ◽  
Social Stability ◽  
High Profile ◽  
Close Analysis ◽  
The Social ◽  
Polluting Firms ◽  
Politically Active

Chapter 2 examines the emergence of China’s “cancer villages”—village-sized clusters of high cancer incidence—and their significance. It overviews how media accounts discursively shaped their social, political and epistemological nature. It develops a typology of cancer villagers based on a close analysis of a selected number of cases examined in recent qualitative research (Chen et al 2013). These relatively high-profile, politically active cases provide a useful background against which to compare the less visibly active case studies examined in later chapters. They illustrate a broader range of activist practices, but they also show that such strategies are often ineffective. Ultimately, these examples suggest that “cancer villages” are not an epidemiologically uncontested label but rather a cultural, social, economic and political phenomenon. Further, they prove that scientific evidence is not the most important element in gaining redress. Rather, it is socio-economic contexts, the persistence of the local population’s complaints and their ability to threaten social stability which largely determines the ways in which polluting firms and the local government may respond. This point is further supported by the book’s three case studies, in which scientific evidence plays a relatively minor role in villagers’ reckonings about environmental health effects and in their demands for redress.

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