New guidance on SOX 404

Abstract

The internal control requirements of the Sarbanes‐Oxley Act (SOX) have been called the most significant change in public company auditing since the advent of the federal securities laws. But do the costs—or companies struggling to meet those requirements—outweigh the benefits of SOX? That's the motivation for important new guidance recently issued. © 2007 Wiley Periodicals, Inc.

Mandatory Audit of Financial Reporting: A Failed Strategy for Dealing with Fraud

“…This process resulted in the adoption of the less onerous Auditing Standard No. 5 (new audit standard over internal control) on July 25, 2007 (Weirich and Rouse, 2007). When the CMLTF report (Boritz, 2006) was advocating adoption of SOX 404 in Canada, the evidence was already mounting that the U.S. regulators were likely to retreat on this provision.…”

The effect of information technology (IT) material weaknesses in internal control on chief financial officer (CFO) turnover

“…The enactment of SOX has been recognized as a regulatory response to the unreliability of corporate managers, especially CEOs and CFOs, and auditing firms. There has been a call for research to reassess both the intended and unintended consequences of the implementation of the Sarbanes‐Oxley Act of 2002 (Haislip et al., 2016; Weirich & Rouse, 2007; Zhang, 2007). Using agency theory, this study examines the impact of an adverse internal control material weakness opinion on CFO turnover over a 4‐year period following the implementation of SOX 404.…”

“…This study is important because it sheds light on the effectiveness of SOX 404 and the pervasive nature of IT related internal controls in organizations. Understanding the influence of IT material weaknesses on CFO turnover is particularly important because the most interesting section of SOX lies in the implementation efforts of SOX 404, which requires management assessment of internal control over financial reporting (Weirich & Rouse, 2007).…”