Pivotal Change in US Public Policy: How the Sarbanes-Oxley Act Affected Internal Auditing and its Relationship to External Auditing

International Journal of Accounting, Auditing & Performance Evaluation, 2009

41 Pages Posted: 18 Sep 2009

See all articles by Murphy Smith

Murphy Smith

Texas A&M University-Corpus Christi-Department of Accounting

Michael S. Drake

Brigham Young University - Marriott School

Mike Shaub

Texas A&M University

Abstract

Accounting regulation is one aspect of the government’s role in protecting the investing public’s interest. The Sarbanes-Oxley Act of 2002 (SOX) was an effort by the U.S. Congress to remedy negative effects of earlier major accounting failures. Requirements of SOX highlight the critical role of internal control as a component of accurate and reliable financial reporting. This new emphasis on effective internal controls places internal auditors of public companies at center stage. Internal audit departments are asked to identify, evaluate, and test the effectiveness of internal controls over financial reporting. This study examines the perceived role of the internal audit function in the external audit and financial reporting process. Results indicate that internal audit participation in the external audit process is perceived to be important by both internal and external auditors. Internal auditors are performing more work for the external auditors after the passage of SOX. Thus, implicitly, external auditors are placing greater reliance on the work of internal auditors.

Keywords: Accounting regulation, SOX, internal auditing, public policy

JEL Classification: F23, G15, G34, M41

Suggested Citation

Smith, Murphy and Drake, Michael S. and Shaub, Mike, Pivotal Change in US Public Policy: How the Sarbanes-Oxley Act Affected Internal Auditing and its Relationship to External Auditing. International Journal of Accounting, Auditing & Performance Evaluation, 2009. Available at SSRN: https://ssrn.com/abstract=1474463

Murphy Smith (Contact Author)

Texas A&M University-Corpus Christi-Department of Accounting ( email )

6300 Ocean Dr
Corpus Christi, TX 78412
United States

Michael S. Drake

Brigham Young University - Marriott School ( email )

United States

Mike Shaub

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

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