Audit quality and accrual persistence: evidence from the pre‐ and post‐Sarbanes‐Oxley periods

Dennis Chambers (School of Accountancy, Coles College of Business, Kennesaw State University, Kennesaw, Georgia, USA)
Jeff Payne (Von Allmen School of Accountancy, University of Kentucky, Lexington, Kentucky, USA)

Managerial Auditing Journal

ISSN: 0268-6902

Publication date: 24 May 2011



The purpose of this paper is two‐fold: first, to examine whether the quality of accruals, as measured by accrual persistence, improved in the post‐Sarbanes‐Oxley (SOX) period, and second, to examine the degree to which SOX‐related improvement in accrual persistence varies across companies depending on the degree of their auditor's independence.


The paper compares accrual persistence in the pre‐ and post‐SOX periods to test the first question. Then, partitioning on relative client importance as a measure of auditor independence, the paper compares the SOX‐based improvement for clients of low and high independence audit firms.


The study first demonstrates that accrual persistence increased significantly in the post‐SOX period. The study also finds evidence that in the post‐SOX period, the subsample of companies audited by Big‐N auditors with lower‐independence experienced the greatest improvement in accrual persistence.


This is the first paper to evaluate SOX‐related improvements in the quality of earnings as measured by accrual persistence. Prior studies test abnormal accruals and other earnings management metrics, however, persistence is a more general test of financial statement quality. This study also is the first to compare SOX‐related improvements for clients of firms with differing levels of independence.



Chambers, D. and Payne, J. (2011), "Audit quality and accrual persistence: evidence from the pre‐ and post‐Sarbanes‐Oxley periods", Managerial Auditing Journal, Vol. 26 No. 5, pp. 437-456.

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