The impact of Sarbanes-Oxley on internal control remediation

Kam Chan, Gary Kleinman, Picheng Lee

Research output: Contribution to journalArticleResearchpeer-review

16 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)53-65
Number of pages13
JournalInternational Journal of Accounting & Information Management
Volume17
Issue number1
DOIs
StatePublished - 26 Jun 2009

Fingerprint

Remediation
Logistics
Internal control
Sarbanes-Oxley
Internal control weaknesses
Corporate governance
Industry
Auditors
Big 4
Resources
Lag

Keywords

  • Corporate governance
  • Financial reporting
  • Internal control

Cite this

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title = "The impact of Sarbanes-Oxley on internal control remediation",
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.",
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The impact of Sarbanes-Oxley on internal control remediation. / Chan, Kam; Kleinman, Gary; Lee, Picheng.

In: International Journal of Accounting & Information Management, Vol. 17, No. 1, 26.06.2009, p. 53-65.

Research output: Contribution to journalArticleResearchpeer-review

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