How Readable are SOX 404 Reports? An Application of Textual Analysis

42 Pages Posted: 15 Jan 2016

See all articles by J. Efrim Boritz

J. Efrim Boritz

University of Waterloo - School of Accounting and Finance

B. Louise Hayes

University of Guelph - Gordon S. Lang School of Business and Economics

Lev Timoshenko

University of Calgary - Haskayne School of Business

Date Written: January 14, 2016

Abstract

This study examines all SOX 404 reports issued between 2004 and 2014 to determine their readability as measured by the FOG index after controlling for report size. We find that managements' reports are more readable than auditors' reports. Big 6 reports are less readable than non-Big 6 reports. Among the Big 4 firms, two firms issued significantly more readable reports than the others. The readability of managements' reports decreased after Auditing Standard (AS) No. 5 (PCAOB 2007) was issued whereas the readability of auditors' reports did not change. Reports containing three or more weaknesses (implying entity level control weaknesses) are significantly more readable than other reports.

Keywords: SOX 404 auditor's reports; SOX 404 management's reports; readability; FOG Index; internal control weaknesses

Suggested Citation

Boritz, Efrim and Hayes, B. Louise and Timoshenko, Lev, How Readable are SOX 404 Reports? An Application of Textual Analysis (January 14, 2016). 2016 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2715400 or http://dx.doi.org/10.2139/ssrn.2715400

Efrim Boritz (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada
519-888-4567 (Phone)
519-888-7562 (Fax)

B. Louise Hayes

University of Guelph - Gordon S. Lang School of Business and Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Lev Timoshenko

University of Calgary - Haskayne School of Business ( email )

2500 University Dr NW
Calgary, Alberta T2N 1N4
Canada

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