Is SOX 404(a) Management Internal Control Reporting an Effective Alternative to SOX 404(b) Internal Control Audits?

Posted: 21 Dec 2016

See all articles by Yangyang Fan

Yangyang Fan

Hong Kong Polytechnic University - School of Accounting and Finance

Chan Li

University of Kansas

Kannan Raghunandan

Florida International University (FIU) - School of Accounting

Date Written: December 20, 2016

Abstract

Section 404 of the Sarbanes-Oxley Act (SOX 2002) continues to be controversial. Using samples of SEC registrants with market capitalizations less than $150 million we find that, non-accelerated filers have significantly larger reduction in the likelihood of material misstatements, discretionary revenues and discretionary accruals compared to smaller accelerated filers after non-accelerated filers became subject to the requirements of Section 404(a). Our findings are consistent with the argument that management reporting on internal controls (Section 404 (a)) may be a cost effective alternative to internal control audits (Section 404(b)) for smaller U.S. public companies.

JEL Classification: M42, M41, M48

Suggested Citation

Fan, Yangyang and Li, Chan and Raghunandan, Kannan, Is SOX 404(a) Management Internal Control Reporting an Effective Alternative to SOX 404(b) Internal Control Audits? (December 20, 2016). Auditing: A Journal of Practice & Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2887832

Yangyang Fan (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Chan Li

University of Kansas ( email )

Capitol Federal Hall
Lawrence, KS 66045
United States
7857661277 (Phone)
66045 (Fax)

Kannan Raghunandan

Florida International University (FIU) - School of Accounting ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States
305-348-2582 (Phone)

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