Did Auditors Need Reforming? The Need for SOX

27 Pages Posted: 17 Oct 2008

See all articles by Antti Fredriksson

Antti Fredriksson

University of Turku - Department of Economics

Frederick W. Lindahl

George Washington University - Department of Accountancy

Date Written: September 2008

Abstract

This paper considers whether the necessity of increased government regulation that was the basis for the American Sarbanes-Oxley Act of 2002 (SOX) can be supported by economic analysis. Although there are no reported data on the costs and benefits of the regulation, economic theory is applied to evaluate whether the objective of improved financial reporting was cost-effective.

We also study the effects of SOX in Finland. This gives us a richer source of information because, unlike America, in Finland there are only a few firms required to comply with SOX, by virtue of their American listing. Other firms, large and small, freely choose whether to adopt aspects of SOX. Likewise, the Finnish stock exchange regulators were free to adopt provisions they felt were beneficial, and ignore others.

We conclude that improvements to the audit process following financial scandals would have been achieved more efficiently through market forces rather than legislative intervention.

Keywords: audit, auditor, regulation, Sarbanes-Oxley Act

JEL Classification: G38, G34, K22, M41, M47, M49

Suggested Citation

Fredriksson, Antti and Lindahl, Frederick W., Did Auditors Need Reforming? The Need for SOX (September 2008). Available at SSRN: https://ssrn.com/abstract=1275974 or http://dx.doi.org/10.2139/ssrn.1275974

Antti Fredriksson

University of Turku - Department of Economics ( email )

20014 Turku
Finland

Frederick W. Lindahl (Contact Author)

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States
202-994-5639 (Phone)
202-994-5164 (Fax)

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