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The impact of Sarbanes‐Oxley on internal control remediation

Kam Chan (Pace University, Pleasantville, New York, USA)
Gary Kleinman (Touro College, New York, New York, USA)
Picheng Lee (Pace University, New York, New York, USA)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 26 June 2009

1681

Abstract

Purpose

The purpose of this paper is to examine the determinants of internal control weakness remediation revealed under Sarbanes‐Oxley (SOX) section 404 reporting requirements.

Design/methodology/approach

Data on firms that reported internal control weaknesses for fiscal year 2004 are collected, and determined whether these weaknesses still existed in their 2005 filings. Logistic regression is used to examine the impact of corporate governance, resource, impediments (e.g. severity of weakness), and Big 4 auditor status on remediation completion.

Findings

Resources (e.g. size, ROA) were positively associated with remediation. Use of Big 4 auditor, more audit committee meetings, more business segments, and filing lag were negatively associated with remediation, as were number and type of internal control weaknesses.

Research limitations/implications

First, the paper sheds light on the individual firm factors that influence corporate response to the legal and social (e.g. public pressure) environment facing firms. Understanding this should better enable policy makers and regulators to foresee where potential lags in firm implementation of regulations may occur, and why. Second, it believes that the paper also sheds light on the relative value of different corporate governance structures in meeting investor concerns for proper stewardship of their investments. Finally, this paper provides information of use to other corporate governance researchers in that the results suggest the overwhelming importance of the legal and social environment in influencing corporate behavior. However, this paper does not address the contribution of national culture, financial and audit‐related reporting requirements, and differences in firm resources, to corporate behavior.

Originality/value

The paper deepens the field's understanding of the determinants of internal control weakness remediation, furthering regulators' understanding of SOX's impact.

Keywords

Citation

Chan, K., Kleinman, G. and Lee, P. (2009), "The impact of Sarbanes‐Oxley on internal control remediation", International Journal of Accounting & Information Management, Vol. 17 No. 1, pp. 53-65. https://doi.org/10.1108/18347640910967735

Publisher

:

Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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