International Implications of the Cost of Compliance with the External Audit Requirements of Section 404 of Sarbanes–Oxley

Bhamornsiri, Sak; Guinn, Robert E.; Schroeder, Richard G.

doi:10.1007/s11294-008-9178-3

Cited by 13 publications

(8 citation statements)

References 9 publications

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“…Ghosh and Pawlewicz (2007) documented an increase in audit fees by approximately 77 percent for the years following the introduction of SOX. Bhamomsiri et al (2009) maintained similar results, indicating that audit fees increased by an average of 65 percent for the initial group of filers in the first year SOX 404 became effective. Similarly, Swartz (2008) reported significant audit fee increases for small firms, and Cosgrove and Niederjohn (2008) provided evidence of higher audit fees across all firms.…”

Section: Audit Fees and Regulationmentioning

confidence: 58%

Indicators of audit fees and fraud classification: impact of SOX

Lenard

Petruska

Alam

et al. 2012

Managerial Auditing Journal

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to compare the effect of corporate governance variables and fraud litigation on audit fees both before and after the implementation of the Sarbanes-Oxley (SOX) Act in 2002. Design/methodology/approach -The paper utilizes a sample of firms that had litigation proceedings filed against them for fraudulent financial reporting, and compare these firms to a sample of non-fraud firms in the pre-and post-SOX period. First, the authors examine indicators of audit fees using the Simunic model. Next, the authors develop a logistic regression model with corporate governance variables and other financial control variables in order to identify the characteristics of firms that are accused of fraud in the pre-and post-SOX period. Findings -The paper identifies specific components of corporate governance that are positively related to audit fees and which subsequently aid in classifying companies subject to fraud litigation. The most successful logistic regression model for 2005 (post-SOX) is 64.4 per cent accurate in distinguishing firms litigated for fraud, while the most successful model for 2001 (pre-SOX) is 61.4 per cent accurate in distinguishing such firms. Originality/value -The research design and findings assist in providing additional evidence about the association between the effectiveness of the corporate governance structure and the external auditor in assessing the risk of fraud.

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Section: Audit Fees and Regulationmentioning

confidence: 58%

Indicators of audit fees and fraud classification: impact of SOX

Lenard

Petruska

Alam

et al. 2012

Managerial Auditing Journal

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“…In this regard, Bedard et al (2008) found evidence of a reduction in risk adjustment of audit fees for accelerated companies resulting from the extensive internal control testing under SOX 404. Related research has found that smaller firms have higher audit risk (Bhamornsiri, Guinn & Schroeder, 2009). 2 H6: Regulated companies exhibited stronger positive linear trends in the period 2006-2009 for both accelerated and non-accelerated companies.…”

Section: Hypothesesmentioning

confidence: 99%

“…They also imply that audit fees for smaller companies will continue to increase whether or not they come under the SOX 404 provisions. Bhamornsiri et al (2009) suggest that smaller firms have relatively weaker internal control structures that require additional audit analysis and predict that smaller companies will experience further increases in audit fees when they become fully subject to the provisions of SOX. Charles et al (2010) found a significant positive association between audit fees and financial reporting risk during the period 2000-2003.…”

Section: Notesmentioning

confidence: 99%

“…() found evidence of a reduction in risk adjustment of audit fees for accelerated companies resulting from the extensive internal control testing under SOX 404. Related research has found that smaller firms have higher audit risk (Bhamornsiri, Guinn & Schroeder, )…”

Section: Hypothesesmentioning

confidence: 99%

“…Bhamornsiri et al . () suggest that smaller firms have relatively weaker internal control structures that require additional audit analysis and predict that smaller companies will experience further increases in audit fees when they become fully subject to the provisions of SOX. Charles et al .…”

mentioning

confidence: 99%

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Modeling Linear Trends in Audit Fees

2013

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This study uses repeated‐measures ANOVA design to examine linear trends in audit fees of US companies. Audit fee trends are analyzed across the effects of regulatory oversight, accelerated or non‐accelerated SOX filing status, and time (2002–2009). Accelerated filers showed stronger positive linear trends than did non‐accelerated filers for the entire eight‐year period. However, non‐accelerated companies showed stronger positive linear trends than did accelerated companies during the latter four‐year period (2006–2009). We attribute this result to additional audit work required in the earlier four‐year period (2002–2005) by accelerated companies to meet the requirements of SOX 404 during the earlier period. We attribute the slowing trend in the latter four‐year period to the increasing maturity of the internal control systems for accelerated companies as well as changes in auditing standards that allowed auditors to more efficiently allocate auditing resources based on audit risk for these accelerated firms.

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