The Effectiveness of SOX Regulation: An Interview Study of Corporate Directors

42 Pages Posted: 28 Feb 2013

See all articles by Jeffrey R. Cohen

Jeffrey R. Cohen

Boston College - Department of Accounting

Colleen Hayes

Australian National University (ANU) - College of Business and Economics, School of Accounting & Business Information Systems

Ganesh Krishnamoorthy

Northeastern University

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Arnold Wright

Northeastern University - Accounting Group

Date Written: February 26, 2013

Abstract

This study provides insights on the effectiveness of the Sarbanes-Oxley Act (2002) in promoting high quality financial reporting and good corporate governance. We report the results of interviews conducted with 22 experienced directors from US firms. Our results indicate that SOX has had a positive impact on the strength of the relationship between the audit committee and the external auditor, and, similarly, on the monitoring role of the board. In general, we find that post-SOX, directors express greater empowerment and authority of the audit committee, and contrary to the findings pre-SOX (Cohen et al. 2002), directors indicate that audit committees have sufficient financial expertise to provide effective monitoring of the financial reporting process. However, participants also indicated that in addition to the audit committee, management still has some influence in decisions to appoint or dismiss auditors, a finding that is consistent with the perspectives of auditors reported in Cohen et al. (2010). Participants indicate that SOX has also led to a substantial improvement in the scope, responsibility, and status of internal auditors. Although CEO certification were viewed as improving financial-reporting quality, directors tempered what they considered to be the benefits of the legislation with the labor-intensive (over)reaction to SOX on the part of management, the audit committee, and the external auditor that resulted in an excessive loss of time for all concerned, which was driven by the heightened sense of litigation risk. This was compounded by a formalistic approach to accounting policy choice that threatens the accuracy and reliability of accounting disclosures. The increased emphasis on compliance has also come at the cost of appropriate risk management.

Suggested Citation

Cohen, Jeffrey R. and Hayes, Colleen and Krishnamoorthy, Ganesh and Monroe, Gary S. and Wright, Arnold, The Effectiveness of SOX Regulation: An Interview Study of Corporate Directors (February 26, 2013). Behavioral Research in Accounting, Vol. 25, No. 1, 2013. Available at SSRN: https://ssrn.com/abstract=2225505

Jeffrey R. Cohen (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

Colleen Hayes

Australian National University (ANU) - College of Business and Economics, School of Accounting & Business Information Systems ( email )

Canberra
Australia

Ganesh Krishnamoorthy

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
617-373-4651 (Phone)
617-373-8814 (Fax)

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

Arnold Wright

Northeastern University - Accounting Group ( email )

406 Hayden Hall
United States

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