Section 302: Matter of Death and Life on the Sentences Preference

2019 ◽  
Author(s):  
Sadiya S. Silvee
Keyword(s):  
Section 302

Auditor Attestation under SOX Section 404 and Earnings Informativeness

2012 ◽  
Vol 32 (1) ◽  
pp. 61-84 ◽  
Author(s):  
Lucy Huajing Chen ◽  
Jayanthi Krishnan ◽  
Heibatollah Sami ◽  
Haiyan Zhou
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Control Sample ◽  
Audit Fees ◽  
Test Sample ◽  
Section 404 ◽  
Earnings Informativeness ◽  
Sarbanes Oxley ◽  
Audit Reports ◽  
Section 302

SUMMARY Section 404 of the Sarbanes-Oxley Act requires managers to assess, and their auditors to express an opinion on, the effectiveness of internal controls over financial reporting (ICFR). Policymakers expect the ICFR audits to enhance the credibility of firms' financial statements. Prior research argues that audit characteristics that enhance the credibility of financial reporting are associated with stronger earnings-return associations. We examine whether earnings accompanied by the first-time Section 404 ICFR reports were associated with higher informativeness compared with earnings in the prior year when only financial statement audit reports were available. We conduct our analysis for a test sample of accelerated filers with clean ICFR reports and clean previous Section 302 disclosures. Using a difference-in-differences approach, we compare the change in earnings informativeness for the test sample with that for a control sample of non-accelerated filers. We find that earnings informativeness for companies with clean internal control reports was greater in the Section 404 adoption year than in the previous year, while there was no change in earnings informativeness for the non-accelerated filers. Also, there is no difference in the increase in earnings informativeness across firms with small and large compliance costs (measured by change in audit fees), suggesting that both groups benefited from the Section 404 ICFR audits.

Section 302(b)(1): The Expanding Minnow

1978 ◽  
Vol 64 (4) ◽  
pp. 561
Author(s):  
Philip F. Postlewaite ◽  
Susan Rogers Finneran
Keyword(s):  
Section 302

Internal Control Quality and Audit Pricing under the Sarbanes-Oxley Act

2008 ◽  
Vol 27 (1) ◽  
pp. 105-126 ◽  
Author(s):  
Rani Hoitash ◽  
Udi Hoitash ◽  
Jean C. Bedard
Keyword(s):  
Internal Control ◽  
Risk Adjustment ◽  
Initial Period ◽  
Audit Fees ◽  
Control Problems ◽  
Section 404 ◽  
Audit Pricing ◽  
Audit Risk ◽  
Sarbanes Oxley ◽  
Section 302

This paper extends prior research on audit risk adjustment by examining the association of audit pricing with problems in internal control over financial reporting, disclosed under Sections 404 and 302 of the Sarbanes-Oxley Act [SOX]. While studies of auditors' responses to internal control risk provide mixed evidence, it is important to re-examine this issue using data on specific client problems not available prior to SOX. As a baseline, we first establish a strong association of audit fees with internal control problems disclosed in the first year of implementation of Section 404, consistent with prior research (e.g., Raghunandan and Rama 2006). We then address two issues on which prior results are contradictory. In a broadly based sample of accelerated filers, we find that audit pricing for companies with internal control problems varies by problem severity, when severity is measured either as material weaknesses versus significant deficiencies, or by nature of the problem. Also, while audit fees increase during the 404 period, our tests show less relative risk adjustment under Section 404 than under Section 302 in the prior year. Further examining intertemporal effects, we find that companies disclosing internal control problems under Section 302 continue to pay higher fees the following year, even if no problems are disclosed under Section 404. Overall, our findings provide detailed insight into audit risk adjustment during the initial period of SOX implementation.

Technology Advancements for Whistleblowing Reporting Platforms and Employees’ Decision to Blow the Whistle

2020 ◽  
Author(s):  
Lei Gao
Keyword(s):  
Artificial Intelligence ◽  
Low Cost ◽  
Virtual Agents ◽  
Experimental Paradigm ◽  
Virtual Agent ◽  
Public Companies ◽  
Online Platform ◽  
Sarbanes Oxley ◽  
Significant Difference ◽  
Section 302

Section 302 of the Sarbanes-Oxley Act requires public companies to maintain platforms for employees to report questionable practices anonymously. Technological advancements have now enabled many firms to incorporate technology into their whistleblowing platforms. An online platform is often promoted as a medium that offers more anonymity than the traditional phone platform. Furthermore, developments in artificial intelligence have enhanced the creation of virtual agents, which can run 24/7/365 at a low cost. Using an experimental paradigm, this study found no significant difference in perceived anonymity between online reporting and phone reporting. The phone platform attracted more reporting intention when a live agent handled reports because witnesses feel more support when talking to a live agent over the phone. However, the witnesses were more likely to report to an online platform when a virtual agent handled the reports because witnesses believed that it is more efficient and provides greater control while reporting.

scholarly journals Internal Control Weaknesses and Acquisition Performance

2017 ◽  
Vol 93 (1) ◽  
pp. 235-258 ◽  
Author(s):  
Nancy L. Harp ◽  
Beau Grant Barnes
Keyword(s):  
Stock Returns ◽  
Financial Reporting ◽  
Internal Control ◽  
Cost Benefit ◽  
Acquisition Performance ◽  
Sarbanes Oxley ◽  
Abnormal Stock Returns ◽  
Internal Information ◽  
Internal Control Weaknesses ◽  
Section 302

ABSTRACT This study examines internal control weaknesses (ICWs) reported under Sarbanes-Oxley (SOX) Section 302 in the context of mergers and acquisitions. We predict that problems in an acquirer's internal control environment have adverse operational implications for acquisition performance. We argue that acquirers with low-quality internal information needed to select profitable acquisitions will make poorer acquisition decisions. We also argue that ICWs impede effective monitoring and are likely to hinder integration tasks that are important to acquisition profitability. We find that ICWs disclosed prior to an acquisition announcement predict significantly lower post-acquisition operating performance and abnormal stock returns. Poorer post-acquisition performance is concentrated in ICWs that are expected to impede acquisition activities (i.e., forecasting/valuation, monitoring, and integration). Our findings contribute to the literature linking ineffective internal control over financial reporting to negative operational outcomes. We also contribute to the SOX cost-benefit debate by documenting a previously unidentified benefit of ICW disclosures.

Corporate Governance and Internal Control over Financial Reporting: A Comparison of Regulatory Regimes

2009 ◽  
Vol 84 (3) ◽  
pp. 839-867 ◽  
Author(s):  
Udi Hoitash ◽  
Rani Hoitash ◽  
Jean C. Bedard
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Section 404 ◽  
Sarbanes Oxley ◽  
Material Weaknesses ◽  
Financial Expertise ◽  
Financial Expert ◽  
Section 302

ABSTRACT: This study examines the association between corporate governance and disclosures of material weaknesses (MW) in internal control over financial reporting. We study this association using MW reported under Sarbanes-Oxley Sections 302 and 404, deriving data on audit committee financial expertise from automated parsing of member qualifications from their biographies. We find that a lower likelihood of disclosing Section 404 MW is associated with relatively more audit committee members having accounting and supervisory experience, as well as board strength. Further, the nature of MW varies with the type of experience. However, these associations are not detectable using Section 302 reports. We also find that MW disclosure is associated with designating a financial expert without accounting experience, or designating multiple financial experts. We conclude that board and audit committee characteristics are associated with internal control quality. However, this association is only observable under the more stringent requirements of Section 404.

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