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1 – 10 of over 2000
Article
Publication date: 1 March 2006

Paul Herz and Paul McGurr

In response to corporate scandals the USA issued the Sarbanes‐Oxley Act to promote corporate responsibility for financial reporting. Some see the impact of the US…

Abstract

Purpose

In response to corporate scandals the USA issued the Sarbanes‐Oxley Act to promote corporate responsibility for financial reporting. Some see the impact of the US legislation crossing borders and influencing the nature of financial reporting in other countries. The purpose of this paper is to investigate whether or not there have been increases in transparency in non‐US financial markets, specifically in South East Asia, suggesting a ripple effect as a result of the Sarbanes‐Oxley Act.

Design/methodology/approach

The study examines the audited financial statements of 92 South East Asian companies issued before and after the Sarbanes‐Oxley legislation to note any significant increase in transparency. As a proxy for transparency, the study examines the number of footnotes included in audited financial statements.

Findings

The results indicate a statistically significant increase in the number of footnotes in the positive direction. Because of this increase, a changing trend of increased transparency is suggested in South East Asia.

Originality/value

In 2002 the USA passed the Sarbanes‐Oxley Act to promote corporate responsibility for financial reporting. Some see this US legislation creating a ripple effect on financial reporting in other countries. The findings of this study suggest a changing trend of increased transparency in financial reporting in South East Asia. Although this trend cannot be directly attributed to the effects of the Sarbanes‐Oxley Act, it appears to be related to a larger, more transcendent worldwide reform movement towards increased corporate responsibility and financial reporting to which the Sarbanes‐Oxley Act appears to have served as a catalyst.

Details

Asian Review of Accounting, vol. 14 no. 1/2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 19 August 2009

W. Scott Sherman and Valrie Chambers

Corporate scandals at Enron, Tyco, and MCI highlight the issue of opportunistic management behavior. The US Congress responded to these scandals by passing the…

Abstract

Corporate scandals at Enron, Tyco, and MCI highlight the issue of opportunistic management behavior. The US Congress responded to these scandals by passing the Sarbanes‐Oxley Act of 2002 (SOX). SOX imposes additional management responsibilities and corporate operating costs on companies trading under SEC regulations. This paper examines three options for US corporations responding to SOX: compliance with SOX, taking a company private, or moving to a non‐ SEC‐regulated exchange, such as an international exchange. The paper then examines potential corporate governance options using Transaction Cost Economics (TCE; Williamson 1985) to develop propositions regarding which options firms may select.

Details

Multinational Business Review, vol. 17 no. 3
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 12 April 2011

James A. Millar and B. Wade Bowen

As a result of scandals concerning major financial crime in the early twenty‐first century, including accounting and auditing fraud and inappropriate behavior by directors

2092

Abstract

Purpose

As a result of scandals concerning major financial crime in the early twenty‐first century, including accounting and auditing fraud and inappropriate behavior by directors on the boards of US corporations, Congress hurriedly enacted the Sarbanes‐Oxley Act (SOX) in 2002. SOX's major purpose was to restore investor confidence in America's securities markets. Small firms argued that their cost of compliance was very heavy and that their burden was greater than for larger firms, especially the costs related to section 404 of the Act, which dealt with new requirements to obtain independent audit opinions. The authors found no empirical research that supports or denies these claims. Subsequently, in 2007, the Securities and Exchange Commission reduced the Act's new audit requirements for small companies. This paper aims to examine audit fees for large and small firms.

Design/methodology/approach

The study examines actual audit fee data to investigate the increased costs paid by publicly traded companies to independent audit firms for their services due to Sarbanes‐Oxley. The authors use univariate and multivariate statistical methods to compare increases in audit fees paid by samples of 150 large firms and 150 small firms.

Findings

The study finds that both small and large firms incurred increased audit fees due to compliance with Sarbanes‐Oxley, and that small companies did incur larger increases in their cost burden.

Originality/value

The study uses actual audit fee data reported to the Securities and Exchange Commission and controls for other factors that determine audit fees in reaching its conclusions.

Details

Corporate Governance: The international journal of business in society, vol. 11 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 18 May 2010

S. Paulo

The purpose of this article is to investigate whether economic value added (EVA®) is a superior financial performance metric and creates market value added (MVA), as…

1954

Abstract

Purpose

The purpose of this article is to investigate whether economic value added (EVA®) is a superior financial performance metric and creates market value added (MVA), as claimed by Stern Stewart and Company, and therefore is consistent with the purpose and intent of the UK Companies Act of 2006 and the Sarbanes‐Oxley Act of 2002. If these claims can be sustained, then it could be argued that this valuation metric should form part of the Business Review, Section 417 of the UK Companies Act of 2006, and furthermore it could be an appropriate approach to the attainment of the corporate objective of the UK Companies Act of 2006, Section 172(1).

Design/methodology/approach

A survey was undertaken of journal articles published in mainstream academic journals from 1997 to 2008 that investigated the claims of Stern Stewart and Company that EVA® was a superior financial performance metric vis‐à‐vis other well‐established accounting and financial metrics. As the empirical evidence in support of these claims was not compelling, the epistemology and methodology of EVA® were examined, and were found to be deficient.

Findings

There is insufficient supportive evidence to validate the claims of EVA®; furthermore, from the perspective of epistemology and sound research methodology it is not possible to make a robust case for the unqualified use of EVA® in jurisdictions where the UK Companies Act of 2006 and the Sarbanes‐Oxley Act of 2002 apply. Directors who make unqualified use of this financial performance metric place themselves at unnecessary risk.

Originality/value

There is no evidence from the scrutiny of publicly available secondary sources to indicate that the implications of the UK Companies Act of 2006 and the Sarbanes‐Oxley Act of 2002, for the use of the financial performance valuation metric, EVA®, has been previously undertaken or published.

Details

International Journal of Law and Management, vol. 52 no. 3
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 1 September 2007

Abbass F. Alkhafaji

The purpose of this paper is to evaluate recent corporate failures and their effect on financial statements, as well as the measures being taken to rebuild trust in…

2129

Abstract

Purpose

The purpose of this paper is to evaluate recent corporate failures and their effect on financial statements, as well as the measures being taken to rebuild trust in corporate America.

Design/methodology/approach

Looks at how corporate governance in the USA is undergoing comprehensive reforms, particularly the significant Sarbanes‐Oxley Act.

Findings

Measures to rebuild trust in corporate America are being implemented.

Originality/value

The paper is of value by showing how the Sarbanes‐Oxley Act is by far is the most important legislative act governing business in the beginning of the twenty‐first century.

Details

Competitiveness Review: An International Business Journal, vol. 17 no. 3
Type: Research Article
ISSN: 1059-5422

Keywords

Article
Publication date: 26 July 2011

Nicholas V. Vakkur and Zulma J. Herrera

The purpose of this study is to empirically analyze, with a greater degree of accuracy than is currently presented in the literature, the comprehensive risk impact of the…

Abstract

Purpose

The purpose of this study is to empirically analyze, with a greater degree of accuracy than is currently presented in the literature, the comprehensive risk impact of the Sarbanes Oxley Act of 2002. Research to date is based upon a series of simple mean‐variance analyses and is therefore unreliable.

Design/methodology/approach

Rigorous statistical methodology to include a highly representative dataset, difference‐in‐difference analysis, comprehensive controls, and fixed effects (firm as well as longitudinal). As a reliability check, the authors also employ several pre‐ and post‐tests.

Findings

In support of Bargeron et al., the authors find that the Sarbanes Oxley Act of 2002 significantly reduced firm risk. In particular, the law reduced firms' risk‐adjusted returns as well as “upside” risk. This is not a mere repeat of prior research, but a detailed analysis of the law's risk impact.

Research limitations/implications

As a study of corporate risk, there are inherent limitations, as contained in every study of this type. First, the authors are unable to account for every single factor that might influence firm risk. However, their methodology represents a significant improvement over the current literature, and therefore produces more comprehensive, detailed, and reliable findings.

Practical implications

The main practical implication is that Sarbanes Oxley, the most important and comprehensive US financial regulation since the New Deal, reduced firm (equity) risk. This represents a finding of enormous importance: comprehensive accounting regulation was never intended to alter firm risk, yet this study strongly suggests that it has in two specific ways.

Social implications

As a result of this study, the cost to investors – the “social” cost – of this important regulation can now be analyzed more conclusively. In particular, the authors suggest Sarbanes Oxley reduced “upside” risk as well as firms' risk‐adjusted returns. This is of enormous potential importance to investors of all types.

Originality/value

This study is original and hence important in several ways: the dataset is arguably an improvement – in terms of the degree to which it is representative of the US economy – over Bargeron et al., the most conclusive study of its type to date; the methods are a significant improvement over the current published studies in the literature; the risk measures analyzed are also entirely distinct and new from prior research in a manner that is important. Prior research, as based upon simple mean‐variance analyses, is unreliable.

Details

Journal of Financial Regulation and Compliance, vol. 19 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 5 May 2014

C. Richard Baker, Jean Bédard and Christian Prat dit Hauret

This paper aims to examine the recent evolution of the regulation of statutory auditing since the passage of the Sarbanes-Oxley Act of 2002 in the USA by comparing the…

2681

Abstract

Purpose

This paper aims to examine the recent evolution of the regulation of statutory auditing since the passage of the Sarbanes-Oxley Act of 2002 in the USA by comparing the regulatory structures for auditing in the USA, France and Canada.

Design/methodology/approach

Using publicly available documents, the paper seeks to understand how the regulatory structures for statutory auditing have changed in the period since the passage of the Sarbanes-Oxley Act. The USA, France and Canada were chosen for analysis because prior to Sarbanes-Oxley the regulatory structures of these three countries were relatively distinct, whereas subsequent to the Act they appear to be becoming similar.

Findings

The authors interpret the increasing apparent similarity in the regulatory structures for statutory auditing in these three countries to be the result of external pressures from global capital markets for standardized regulatory practices. However, this apparent similarity may also be a form of “decoupling”, whereby actors in the institutional field of professional regulation, under pressures from powerful external forces, seek to enhance their legitimacy while maintaining internal flexibility and a certain capacity for resistance against external pressures in the institutional field.

Research limitations/implications

The paper relies on a qualitative analysis of regulatory structures based on a review and analysis of publicly available documents and legislation. As such, it has limitations similar to other qualitative studies.

Practical implications

The regulation of statutory auditing is important to society both to assure the proper functioning of capital markets and to provide reliable information to the general public. Gaining a better understanding of the regulatory structures for statutory auditing advances the public interest.

Originality/value

There have been few prior research efforts that have examined the regulation of statutory auditing through the lens of new institutional theory.

Details

Managerial Auditing Journal, vol. 29 no. 5
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 10 April 2009

Steven T. Petra and Gerasimos Loukatos

The Sarbanes‐Oxley Act has celebrated its fifth anniversary. This paper aims to discuss the effectiveness and usefulness to the accounting profession and the investing

2684

Abstract

Purpose

The Sarbanes‐Oxley Act has celebrated its fifth anniversary. This paper aims to discuss the effectiveness and usefulness to the accounting profession and the investing community of the reforms set forth in the Act.

Design/methodology/approach

Various components of the Sarbanes‐Oxley Act of 2002 are explored in detail, predominantly those dealing with corporate governance and internal controls. Discussions with practicing certified public accountants along with opinions from other professionals in the investing community are used to gain insight into the Act's effects on those who work its provisions on a daily basis.

Findings

Differing opinions exist as to the effects of the reforms on the accounting profession, financial reporting, capital markets, and ultimately, investor confidence. Some experts feel the reforms are helping to restore investor confidence in issuer's financial statements while others feel the cost of compliance with the Act's reforms exceed the benefits.

Practical Implications

Implementation of the Act's reforms are not without controversy. This paper highlights the need for investors to understand the nature and issues surrounding the reforms to help increase investor confidence in the financial markets.

Originality/value

This paper reviews the origins of the Act's reforms and their intended purpose. A better understanding of the reforms and discussions with experts in the business community allows investors to determine the effectiveness and usefulness of the Act.

Details

Corporate Governance: The international journal of business in society, vol. 9 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 1 April 2004

David C. Fischer

The Sarbanes‐Oxley Act outlawed some of the worst practices of the failed companies, and imposed significant changes in accounting and auditing rules, as well as oversight…

Abstract

The Sarbanes‐Oxley Act outlawed some of the worst practices of the failed companies, and imposed significant changes in accounting and auditing rules, as well as oversight of public accounting. This article contains a checklist that is intended to provide principal executive, financial and accounting officers with a catalog of and brief commentary on new or amended rules that may require changes in procedures or duties within their respective areas of responsibility. The checklist covers certification requirements, reports on disclosure and financial controls, financial reporting, requirements relating to audit committees, relations with the auditor, and management conduct.

Details

Journal of Investment Compliance, vol. 5 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 16 November 2010

S. Paulo

The purpose of this paper is to draw attention to the fact that the certainty equivalent coefficient net present value criterion, CEC(NPV), in disregarding a fundamental…

1269

Abstract

Purpose

The purpose of this paper is to draw attention to the fact that the certainty equivalent coefficient net present value criterion, CEC(NPV), in disregarding a fundamental requirement for the calculation of cash flows for purposes of discounted cash flow analysis, invalidates this capital budgeting criterion from the perspective of sound research methodology. The paper also investigates the impact of the UK Companies Act of 2006, the Sarbanes‐Oxley Act of 2002, and important reviews such as the Turner Review of 2009, the Walker Review of 2009, and the Review of the Combined Code of 2009 on this operationally invalid capital budgeting criterion, as well as its impact on the process of financial managerial decision making.

Design/methodology/approach

The CEC(NPV) as a discounted cash flow capital budgeting criterion was examined from the perspective of the axioms of cash flow estimation as well as from the definition of the cost of capital in order to ascertain the contribution of this criterion to financial management. The relevant sections of the UK Companies Act of 2006, the Sarbanes‐Oxley Act of 2002, the Turner Review of 2009, the Walker Review of 2009, and the Review of the Combined Code of 2009 were studied in order to establish whether the CEC(NPV) was able to satisfy the requirements of this legislation and these important reviews.

Findings

The CEC(NPV) is construct invalid and does not measure what it purports to measure: it over‐states financial viability. As a consequence, it does not meet the requirements of sound research methodology and therefore is at odds with the UK Companies Act of 2006, the Sarbanes‐Oxley Act of 2002, and falls foul of the Turner Review of 2009, the Walker Review of 2009, the 2009 Review of the Combined Code issued by the Financial Reporting Council. As such it cannot be endorsed by the Financial Services Authority.

Originality/value

The paper usefully shows that the CEC(NPV) denies financial managers application of Fisherian analysis for resolving conflicts in the rankings of mutually exclusive projects, and, the comparison of project cost of capital with their respective internal rates of return. Comparisons of the internal rate of return, not with the risk‐free rate (that is assumed to be a constant and which exhibits minimal variability in comparison with the cost of capital), but with the cost of capital cost of capital, are a sine qua non for managerial decision making, especially capital budgeting.

Details

International Journal of Law and Management, vol. 52 no. 6
Type: Research Article
ISSN: 1754-243X

Keywords

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