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The purpose of this study is to examine the value of auditor attestation in internal control over financial reporting (ICFR) disclosures. The authors argue that internal control material weakness (ICMW) disclosures issued without auditor attestation by non-accelerated filers provide weaker signal to the impaired financial reporting quality compared to those issued with auditor attestation by accelerated filers.

This study investigates the differences in the association between ICMW disclosures and impaired financial reporting quality, as proxied by financial statement restatements, for accelerated and non-accelerated filers. The authors use propensity score matching to find control groups for both accelerated and non-accelerated filers.

The authors find that ICMW disclosures signal impaired financial reporting quality for both accelerated and non-accelerated filers, but such signaling is weaker for non-accelerated filers compared to accelerated filers.

Although propensity score matching was used to match firms with and without ICMW disclosures, any unobservable fundamental differences between these groups may affect the results of this study.

This study shows that auditors’ involvement in the assessment of internal control effectiveness improves the signaling effect of ICMW disclosures on impaired financial reporting quality. As approved by the House Financial Services (HFS) Committee on November 4, 2009, non-accelerated filers are permanently exempt from auditor attestation requirement. This study provides some evidence that the exemption of non-accelerated filers from auditor attestation may have unintended consequences, and these results should be of interest to regulators and investors.

The purpose of this paper is to estimate the cost of the internal control audit for small firms and assess whether the costs are scalable or, alternatively, whether they are higher in relation to firm size for small firms than for larger firms.

The method estimates the Section 404 audit fee premium for companies that became accelerated filers for the first time in 2006 and 2007. The authors use the estimated audit fee premium as a proxy for the premium that non‐accelerated filers would have to pay if they were required to obtain an internal control audit.

The main finding shows that the Section 404(b) estimated cost of the internal control audit divided by assets are significantly higher for non‐accelerated filers and first‐time filers than for those of larger firms.

One limitation of the study is that, while it shows that the costs of the Section 404 audit are not scalable to firm size, it does not prove that the costs of the audit exceed the benefits for non‐accelerated filers.

The finding that the costs are proportionately higher for small firms provides some evidence supporting the decision to permanently exempt non‐accelerated filers from Section 404(b).

The results show that smaller firms pay proportionately more for the Section 404 internal control audit than larger firms. This suggests that the revised AS no. 5 did not succeed in making the internal control audit completely scalable to firm size.

This paper aims to investigate whether the Sarbanes-Oxley Act: Section 404(b) exemption caused an increase in auditor changes due to changes in expectations for both auditors and their clients.

This paper predicts that this exemption caused a significant amount of auditor changes post-exemption, due to a change in expected future economic rents (audit scope demands) for auditors (clients). Logistic regression analysis is used to examine whether auditor changes increased for non-accelerated filers (public companies with less than $75 million in public float), who were affected by this exemption, compared to auditor changes for accelerated filers (public companies with greater than $75 million in public float), who were not affected by this exemption.

The results show a significant positive association between the exemption and auditor dismissals for non-accelerated filers compared to that of accelerated filers. This finding is robust when sensitivity tests are used.

Prior literature finds that an increase in auditor changes can have various positive and negative effects on the affected companies. Thus, investors will be interested in the results of this paper when making their investment decisions with regard to non-accelerated filers.

The results of this paper will aid policymakers as they consider the pros and cons of this exemption, as it pertains to the affected companies.

This paper is the first to study the effects of this exemption on auditor turnover for the affected companies.

This paper aims to investigate whether the expected implementation of Section 404(b) of the Sarbanes-Oxley Act (SOX 404(b)) (the integrated audit requirement) caused auditors to discount their audit fees for non-accelerated filers in anticipation of expected increased future economic rents (DeAngelo, 1981) from those clients.

This paper predicts that auditors charged their non-accelerated filer clients lower audit fees during the years 2005-2007 (in anticipation of increased expected future economic rents from the implementation of the SOX 404(b) requirement) compared with the years 2010-2012 (when it had been determined that non-accelerated filers were permanently exempt from complying with SOX 404(b)). The authors use ordinary least squares regression analysis to examine whether audit fees increased significantly for non-accelerated filers after the permanent exemption announcement.

The results show a significant positive association between the exemption announcement and audit fees, supporting the theory that auditors discounted their audit fees for non-accelerated filers in the pre-exemption announcement period. This finding is robust when sensitivity tests are used.

The findings of audit fee discounting literature related to the post-SOX period are mixed. This study adds to this stream of literature by supporting the notion that audit fee discounting is being practiced post-SOX and is a potential unintended consequence of SOX 404 and the exemption. Thus, investors will be interested in the results of this paper when making their investment decisions with regard to non-accelerated filers.

The results of this paper show that, even in the post-SOX environment, auditors will employ the use of audit fee discounting if a change in regulation incentivizes it. This commentary on the present state of the audit pricing market should be of interest to audit pricing policymakers.

This paper is one of the first to study audit fee discounting outside the realm of initial audit engagements.

The Dodd–Frank Act of 2010 exempts small, non-accelerated filers from compliance with Sarbanes–Oxley Act (SOX) Section 404b internal control audits. However, these firms are required to comply with other internal control regulations, namely, SOX Sections 302 and 404a, starting in 2002 and 2007, respectively. A small number of these firms also voluntarily adopted (and sometimes dropped) Section 404b during 2004-2010. The purpose of this study is to investigate the impact of a series of internal control regulations introduced by SOX on the financial reporting quality of small firms.

The research design for this study is empirical. Using unsigned and signed discretionary accruals as measures of financial reporting quality, the authors compare the financial reporting quality for adopters and non-adopters across four regulation regimes over the period 2000-2010: PRESOX, SOX 302, SOX 404a and SOX 404b.

The results indicate that most of the adopters and non-adopters benefited from SOX 302 and 404a compared with the PRESOX period. However, only the non-adopters gained incrementally when moving from SOX 302 to SOX 404a. Also, Section 404b benefited firms with material weaknesses, as well as firms without material weaknesses that had the lowest reporting quality, in the PRESOX period.

This study helps inform the important policy debate on whether to increase the threshold that is used for the SOX 404b exemption. It shows incremental benefits for firms that adopted Section 404b audits, even when they were complying with Section 302 and Section 404a. Consequently, extending the exemption to more companies would result in a loss of the reporting quality benefit of 404b.

This study contributes to the literature by focusing exclusively on non-accelerated filers and by examining differences across four regulation regimes over a long window compared to prior studies. It provides evidence that the financial reporting benefit of SOX 404b is not transitional, but rather extends for a few years even after some firms discontinued the 404b audits.

The purpose of this study is to examine the change in audit fees for US‐listed foreign firms in their first year of providing Section 404 auditor attestation reports for fiscal years ending between July 15, 2006 and July 14, 2007.

During the sampling time period, foreign large accelerated filers had to provide both auditor and management Section 404 reports while the foreign accelerated filers only had to provide management Section 404 reports without the auditor attestation reports. Foreign non‐accelerated filers did not have to provide any Section 404 report. This research design and sample allows the authors to control for the general market‐wide increases in audit fees. The paper examines the annual change in audit fees from the preceding year to the first year of Section 404 compliance.

It is found that foreign large accelerated filers have an average increase of 74 percent in audit fees in this first year of Section 404 compliance, while the foreign accelerated filers and non‐accelerated filers only have increases in audit fees of 33 percent and 42 percent, respectively. Since this research design and sample allow the authors to control for the general market‐wide increases in audit fees, the authors are able to conclude that foreign large accelerated filers incurred, on average, a 30 percent increase in audit fees just to comply with Section 404. It is also found that the increase in audit fees among foreign large accelerated filers is negatively associated with the strength of their home countries' legal environment.

Arguably, Section 404 is perhaps the most controversial aspect of Sarbanes‐Oxley Act due to its high audit fees. The results of this study would provide interesting findings to regulators and researchers.

The purpose of this paper is to provide more comprehensive analysis of the effects of Sarbanes‐Oxley (SOX) Act on both audit fee premium and auditor change in the US audit market.

The audit fee premium model is employed to track the trend in audit fee premium between 2000 and 2006 for small accelerated filers compared with large accelerated filers and non‐accelerated filers and how the change in auditor affected such trend around the enactment of SOX.

The results indicate a significant shift in audit fee premium during early years of SOX compliance especially for small accelerated filers compared with large accelerated filers or non‐accelerated filers. Such shift started to wind down during 2006 after the initial application of SOX requirements. Although clients who switched from big to non‐big auditors have experienced a slower increase in their audit fees, these fee savings are lower for small accelerated filers during 2004 and 2005 with the increasing demand for audit services in the US audit industry during these years.

The compliance costs of significant regulatory changes like SOX may be upfront loaded but their benefits are long‐term benefits in terms of higher quality of financial reporting and better internal controls over financial reporting. When analyzing the effects of such regulatory changes, practitioners and researchers should factor these costs and benefits over a sufficient time horizon.

More comprehensive analysis of SOX effects on the US audit industry not only in the short run during early compliance years, but also in the longer run after the initial setup process.

Central to the Sarbanes–Oxley Act was a requirement that every company have an audit of its internal control over financial reporting. However, there were concerns that this requirement was overly burdensome, from a financial perspective, for small businesses. This concern promoted several delays in enforcing the law for small companies and ultimately caused congress to permanently exempt small businesses. Yet, there are some small companies that voluntarily elect to comply with the law. The purpose of this paper is to explore why these companies elect to incur these costly audits.

Using a sample of 5,834 non-accelerator US firms, this paper uses a robust logistic regression model to examine why some firms comply voluntary with SOX Section 404(b).

This study shows that small companies getting audits of internal controls may be doing so to restore investor confidence after reporting failures, to appear credible prior to raising funds, as a response to organizational changes, or in anticipation of being required to comply.

This study provides regulators with an improved understanding of when it is necessary to implement mandatory rather than voluntary guidance.

This study is the first to document why a client would voluntarily comply with SOX Section 404 (b).

The purpose of this study is to examine audit report lags and audit report deadline margins. It specifically examines whether audits of large accelerated filers are completed within a shorter period as compared with regular accelerated filers due to the introduction of new deadline filing requirements by the SEC. The paper also examines whether large accelerated filers have shorter audit report deadline margins.

Using a sample of 7,129 firm-year observations over the period 2007-2013, an OLS regression model is applied by regressing audit report lags and audit report deadline margins on an indicator variable for large accelerated filers and a set of control variables.

Results indicate that audits of large accelerated filers have shorter audit report lags as compared with regular accelerated filers. Also, large accelerated filers have shorter audit report deadline margins as compared with regular accelerated filers. These results suggest that even though large accelerated filers’ audits are more complex by nature, auditors of these firms are under more pressure to complete their audits and issue their clients’ audit reports on time.

While the control variables included in the models are all based on established theories and validated in prior research, there may still be some control variables that were excluded from the study’s models. Also, these results cannot be generalized beyond firms that are categorized as large accelerated filers or accelerated filers.

Public accounting firms should be prepared to devote more resources to large accelerated filers’ clients. Also, regulators might need to reconsider revising the filing deadline requirements for the new category of large accelerated filers by weighing the pros against the cons of these new deadlines, as it appears that auditors of large accelerated filers need more time to complete their audits.

This study uses a new measuring tool in addition to audit report lags, which is the ‘audit report deadline margin’.

The purpose of this paper is to investigate the roles of chief accounting officer (CAO) on the efficiency of auditing process and to empirically examine the association between separate CAO appointment and audit report lag (ARL).

This study employs firms listed in the US market from 2004 to 2012. The firm year having a CAO who does not simultaneously take other executive position is specifically identified. Firm years with job titles similar to CAO, such as chief accounting executive, vice president of accounting or corporate accounting executive, are categorized into the CAO group.

The presence of a separate CAO significantly reduces ARL. With the appointment of a new auditor, the presence of a separate CAO is associated with lower ARL, suggesting the moderating effect of separate CAOs on the relationship between auditor change and audit delay.

This study shows the importance of CAO, an executive who is specifically responsible for carrying out accounting functions. The findings suggesting the positive effects of separate CAO on external audit process and the timeliness of information should be of interest to firms, financial reporting users, auditors and regulators.

While few studies address CAO-related issues, the roles of a CAO are not widely explored and how a separate CAO affects external audit process remains an open question. This study fills this gap and further documents the contribution of separate CAO in external audit work to enrich literature in executive roles and audit efficiency at the same time.