The Sarbanes Oxley Act, Auditor Independence and Accounting Accruals: An Empirical Analysis

38 Pages Posted: 10 Mar 2006

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Scott Duellman

Saint Louis University - Department of Accounting

Ahmed M. Abdel-Meguid

The American University in Cairo - School of Business

Date Written: November 13, 2006

Abstract

We provide evidence on the relation between office-level client importance and abnormal accruals in a pre-SOX period and a post-SOX period. We find that in the pre-SOX period the relation is not significant for the overall sample. However, it is significantly positive for the sub-sample of firms with relatively weak governance mechanisms. More importantly, we find that for this sub-sample the positive relation between client importance and abnormal accruals remains statistically significant even in the post SOX period. Our results suggest that (i) auditor independence was not widely compromised in pre-SOX periods as presumed by the proponents of SOX, (ii) strong governance mechanisms mitigate the potentially adverse effects of client importance on auditor independence, and (iii) SOX has not been successful in mitigating the adverse effects of client importance on auditor independence for firms with weak governance.

Keywords: Sarbanes-Oxley, Auditor Independence, Corporate Governance, Accounting Accruals

JEL Classification: G3, M41, N22

Suggested Citation

Ahmed, Anwer S. and Duellman, Scott and Abdel-Meguid, Ahmed M., The Sarbanes Oxley Act, Auditor Independence and Accounting Accruals: An Empirical Analysis (November 13, 2006). Available at SSRN: https://ssrn.com/abstract=887364 or http://dx.doi.org/10.2139/ssrn.887364

Anwer S. Ahmed (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Scott Duellman

Saint Louis University - Department of Accounting ( email )

3674 Lindell Blvd.
St. Louis, MO 63108
United States

Ahmed M. Abdel-Meguid

The American University in Cairo - School of Business ( email )

The American University in Cairo (AUC)
School of Business
New Cairo, 11835
Egypt

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