Sarbanes-Oxley and Public Reporting on Internal Control: Hasty Reaction or Delayed Action?

Posted: 12 Aug 2013 Last revised: 1 Dec 2014

See all articles by Parveen P. Gupta

Parveen P. Gupta

Lehigh University - Department of Accounting

Thomas R. Weirich

Independent

Lynn E. Turner

Independent

Date Written: August 11, 2013

Abstract

Since its passage, the Sarbanes-Oxley Act of 2002 has been criticized, and praised, by many on numerous grounds and claims. However, no single provision of this law has come under more attack than Section 404, which mandates public reporting of internal control effectiveness by an issuer’s management as well as its independent auditors. Even after 10 years, the opposition to the Section 404 internal control requirements has continued to the point where the U.S. Congress through two separate Acts — the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, and the 2012 Jump Start Our Business Startups (JOBS) Act — have permanently exempted the non-accelerated SEC filers and the ‘‘emerging growth’’ issuers with revenues of $1 billion or less from Section 404(b) of the Sarbanes-Oxley Act of 2002. Many of those who oppose the Section 404 requirements rest their claim on grounds that the U.S. Congress acted in haste in mandating the public reporting of internal controls by U.S.-listed companies and that the issue was not well thought out or debated. They also contend that the U.S. Congress acted under pressure because of the public outrage over the bankruptcy filings of Enron and WorldCom. To the contrary, this paper shows that the debate over public reporting of internal control by U.S. public companies is more than six decades old, dating back to the McKesson & Robbins fraud. This paper reviews relevant legislative proposals, bills introduced in both the House and the Senate, regulatory efforts by the SEC, and the recommendations of many commissions set up by the private sector to inform the reader how these efforts were the deliberative precursors to what was eventually codified in Section 404 of the Sarbanes-Oxley Act of 2002.

Keywords: internal control, financial reporting, Sarbanes-Oxley Act of 2002, audit of internal control, Section 404

JEL Classification: G38, K22, M41

Suggested Citation

Gupta, Parveen P. and Weirich, Thomas R. and Turner, Lynn E., Sarbanes-Oxley and Public Reporting on Internal Control: Hasty Reaction or Delayed Action? (August 11, 2013). Accounting Horizons, Vol. 27, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2308614

Parveen P. Gupta (Contact Author)

Lehigh University - Department of Accounting ( email )

621 Taylor Street
RBC #37
Bethlehem, PA 18015
United States
610-758-3443 (Phone)
610-758-5992 (Fax)

HOME PAGE: http://www.lehigh.edu

Thomas R. Weirich

Independent ( email )

Lynn E. Turner

Independent ( email )

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
758
PlumX Metrics