Differential SOX Regulation Regimes and ICFR Disclosure Quality

• In Event: Breakfast and Research Forum
  In Roundtable Session: Table 5: Accounting and Auditing Standards

Abstract

Although prior studies indicate that compliance with Section 404 of SOX which requires high-effort management disclosure and internal control audit is costly, no consistent conclusion is drawn from prior studies that Section 404 can improve the disclosure quality of internal control over financial reporting (ICFR). By analyzing incremental and joint implementation of multiple SOX-based ICFR disclosure and internal control audit mandates, we examine the differential effects of alternative internal control over financial reporting regulations on the quality of ICFR related public disclosure. Our results reveal that companies subject to full Section 404 issue higher-quality internal control reports than those subject to Section 302 or Section 404(a) only. However, we find no supporting evidence that companies subject to Section 404(a) issue better quality internal control reports than those subject to Section 302 only. This study provides evidence to policymakers for setting up internal control reporting regulations in the future.

Authors

• Hsien-Lian Chiu, National Chengchi University

• Ling-Tai Lynette Chou, National Chengchi University