Auditors’ and Governmental Financial Officers’ Views on Expanding the Sarbanes-Oxley Act to the State and Local Government Sector

• In Event: Accounting, Behavior and Organizations 2

Abstract

Many legislators have called for expanding the scope of the Sarbanes-Oxley Act (SOX 2002) provisions to include state and local governmental entities (Mead 2008). The Securities and Exchange Commission (2012) has also recently suggested requiring governmental entities to adhere to many reporting requirements that currently affect public corporations, presumably including many SOX provisions. We use data from a survey of governmental financial officials (GFOs) and their external auditors to gauge support for SOX-like legislation for governmental entities. We find that auditors generally lean toward not supporting it while GFOs lean toward supporting it, although the magnitude of support/non-support is not large. We find stronger support by both parties for auditor independence rules similar to SOX, management assessment of internal controls, and severe penalties for destruction of records, fraud, and failure to report fraud. These findings should help standard-setters establish specific SOX provisions affecting the governmental sector.

Authors

• Alan Reinstein, Wayne State University

• Mohammad J Abdolmohammadi, Bentley University

• Stefanie Tate, University of Massachusetts Lowell

• Cathleen L Miller, University of Michigan–Flint