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This study provides evidence on the nature of voluntary management reports on internal control (MRIC), and on the characteristics of firms issuing such reports, before internal control reports were mandated under Section 404 of the Sarbanes-Oxley Act. We examine the association between firm characteristics and the voluntary inclusion of an MRIC in the firm's annual report. Our analysis of 397 midsized firms in 1998 indicates that a voluntary MRIC is more likely for firms that are larger, have an audit committee that meets more often, have a greater level of institutional ownership, and have more rapid income growth. We find that a voluntary MRIC is less likely for companies with more rapid sales growth. Slightly more than one-third of our sample issues an MRIC. None of the voluntary MRICs mention any material weaknesses; no reports include an auditor attestation; less than half (41 percent) of the reports include a statement that controls were effective; and only three of these reports include the criteria used to assess control effectiveness.

Prior studies find that audit fees are higher for cross-listed firms, and these studies primarily attribute the incremental fees to added litigation costs. In this study, we investigate whether the higher audit fees that foreign firms cross-listed in the United States pay are also attributable to incremental audit effort associated with U.S. disclosure requirements and a more stringent U.S. auditing environment. By comparing audit fees of foreign cross-listed firms to U.S. domiciled firms and to non-cross-listed foreign firms, we are able to decompose incremental audit fees into portions attributable to added audit effort and to added litigation costs. We find that, on average, foreign firms cross-listed in the United States pay significantly higher fees than domestic U.S. firms and foreign firms that do not cross-list. Furthermore, we find that audit effort is almost as important as litigation costs in explaining the higher fees associated with foreign cross-listed firms; our estimates suggest that between 29 percent and 48 percent of the incremental fees are attributable to incremental audit effort. In addition, the total cross-listing premium is increasing in the difference between the U.S. auditing regulatory environment and that of the home country of the cross-listed firm. Our study improves our understanding of the role of audit effort in explaining the added fees charged by auditors when foreign firms cross-list in the United States.

SYNOPSIS We examine whether regulations requiring accelerated filing deadlines and internal control reporting and testing affect financial statement reliability. Unlike prior research, we examine whether these regulatory changes are associated with an increase in the likelihood that misstatements originate in the period following the respective change. If the implementation of these rules causes a misstatement, then the misstatement would most likely occur in the period immediately following the rule change. We provide evidence that accelerated filers (AFs) experience an increase in the likelihood of an originating misstatement following the acceleration of filing deadlines from 90 to 75 days. Large accelerated filers (LAFs), however, do not experience a similar increase following this acceleration or the subsequent acceleration from 75 to 60 days. After the implementation of the SOX Section 404 internal control requirements, we find that the likelihood of an originating misstatement declined for AFs but not for LAFs. Taken together, the findings suggest that, although AFs experienced an initial decrease in financial statement reliability, this decrease was temporary. Data Availability: Data are publicly available from the sources identified in the text.