Download or read book The Disclosure of Material Weaknesses in Internal Control After the Sarbanes Oxley Act written by Weili Ge and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on a sample of 261 companies that have disclosed at least one material weakness in internal control in their SEC filings after the effective date of the Sarbanes-Oxley Act of 2002. Based on the descriptive material weakness disclosures provided by management, we find that poor internal control is usually related to an insufficient commitment of resources for accounting controls. Material weaknesses in internal control tend to be related to deficient revenue recognition policies, lack of segregation of duties, deficiencies in the period-end reporting process and accounting policies, and inappropriate account reconciliation. The most common account-specific material weaknesses occur in the current accrual accounts, such as the accounts receivable and inventory accounts. Material weakness disclosures by management also frequently describe internal control problems in complex accounts, such as the derivative and income tax accounts. In our statistical analysis, we find that disclosing a material weakness is positively associated with business complexity (e.g., multiple segments and foreign currency), negatively associated with firm size (e.g., market capitalization), and negatively associated with firm profitability (e.g., return on assets).

Download or read book How to Comply with Sarbanes Oxley Section 404 written by Michael J. Ramos and published by John Wiley & Sons. This book was released on 2004-03-29 with total page 306 pages. Available in PDF, EPUB and Kindle. Book excerpt: Designed specifically for Sarbanes-Oxley Section 404 compliance, How to Comply with Sarbanes-Oxley Section 404 features: A step-by-step approach to engagement performance Original material from a leading expert in auditing and accounting Practice aids, including forms, checklists, illustrations, diagrams, and tables In-depth explanations to help professionals understand how best to approach the internal control engagement Examples and action plans providing blueprints for implementing requirements of the Act Order your copy today!

Download or read book The Role of Audit Firm Tenure in a Firm s Propensity to Disclose Material Weaknesses in Internal Controls After SOX written by David Adu-Boateng and published by . This book was released on 2012 with total page 306 pages. Available in PDF, EPUB and Kindle. Book excerpt: Audit firm tenure impacts the quality of audit work and the disclosure of material internal control weaknesses. Public firms are required by the Sarbanes Oxley Act of 2002 (SOX) Section 302 to disclose material internal control weaknesses. Researchers debate whether audit firm rotation is necessary for improving audit quality (Chen, Lin, & Lin, 2008). Generally, an auditor needs sufficient time to become familiar with a client's business in order to enhance effective controls and financial reporting. However, long tenure may diminish auditor independence, and in turn reduce the quality of audit work and encourage a client to violate SOX disclosure requirements. Therefore, it is expected that the disclosure of material internal control weaknesses is less likely given long audit tenure. Prior studies consider many variables that impact the disclosure of control weaknesses, except audit tenure. Further, prior studies do not address the issue of whether familiarity or independence explains non-disclosure. This dissertation investigates the role of audit firm tenure and concludes that the disclosure of material internal control weaknesses is more likely given short tenure. Further, familiarity with the client's business, which is associated with long tenure, explains non-disclosure and not the lack of independence. Therefore, audit firm rotation may not be necessary.

Download or read book SOX 404 for Small Publicly Held Companies written by Robert J. Sonnelitter, Jr. and published by CCH. This book was released on 2007 with total page 438 pages. Available in PDF, EPUB and Kindle. Book excerpt: CCH's SOX 404 for Small, Publicly Held Companies enables you to successfully and efficiently make the internal control assessment required by Section 404 of the Sarbanes-Oxley Act. In particular, this book will help non-accelerated filers-those companies that have outstanding securities with a market value of less than $75 million-with the challenging and time-consuming SOX 404 requirements. This addition to the CCH reference library gives you the tools for the evaluation, planning documentation, risk assessment, testing, and reporting necessary for successful compliance with Section 404. It focuses on the SEC's rules for an assessment of internal controls and the PCAOB's requirements for independent auditors. The free, companion CD-ROM accompanying this book includes workpapers and checklists as well as primary source material from the SEC and PCAOB to make your research and reporting as quick and cost-efficient as possible. SOX 404 for Small, Publicly Held Companies and the accompanying CD-ROM address all that is necessary to perform an assessment of internal controls over financial reporting as well as an assessment of disclosure controls. Book jacket.

Download or read book The Sarbanes Oxley Act written by Michael F. Holt and published by Butterworth-Heinemann. This book was released on 2007-11-16 with total page 219 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Sarbannes-Oxley Act (SOX) is a mandatory requirement for all listed corporations in the US, whether foreign or not. Compliance is not an option. Other countries are developing similar legislation so the books value is international in scope. SOX is a hot topic and the effects are just beginning to be felt world-wide. This new book goes beyond the implementation phase of SOX and looks at the reaction to the Act in terms of costs, benefits and business impacts. This book is for Senior Managers in the Business and Financial/Accounting Communities who want/need to know what the reaction of business and government is to the SOX legislation, what it is costing and how the effects are penetrating through the business environment.Mike Holt presents a comprehensive review of the impact that Sarbanes-Oxley legislation has had on business, the financial community, governments and the public since its inception in 2002. The Sarbanes-Oxley Act has been somewhat successful, but not completely and the cost (well over a trillion dollars) might be considered too high a price to pay for the gains. This book takes a hard look at the costs, benefits and other impacts as well as at what influential and prominent financial, government and business leaders think about it now.* International in scope and content and including interviews with prominent business leaders, CEOs and CFOs of large and small corporations.* Compliance with The Sarbanes-Oxley Act is now mandatory for every listed US corporation and overseas corporations listed on US stock markets.* Covers the reaction of business and government to this legislation, what it is costing and how the effects are penetrating through the business environment.

Download or read book Internal Control Weakness and Cost of Equity written by Maria Ogneva and published by . This book was released on 2012 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Section 404 of the Sarbanes-Oxley Act (SOX) requires every company to report on the effectiveness of internal controls over financial reporting. Section 404 has arguably been the most controversial provision of SOX, with many registrants complaining that the high cost of compliance outweighs its benefits. In contrast, the SEC and others have argued that the Section 404 provisions are beneficial to the capital markets and will eventually reduce the cost of capital. In this paper, we examine the association between implied cost of equity and internal control effectiveness for firms that filed Section 404 reports with the SEC. We find marginally higher cost of equity for firms disclosing material weakness in internal controls than for a sample of firms disclosing no material weaknesses. The differences in cost of equity disappear after controlling for firm characteristics associated with firms disclosing material weaknesses. Overall, our results are consistent with internal control weakness identified under Section 404 not being directly associated, on average, with higher implied cost of equity.

Download or read book Earnings Management of Firms Reporting Material Internal Control Weaknesses Under Section 404 of the Sarbanes Oxley Act written by Kam C. Chan and published by . This book was released on 2019 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: The main objectives of the Sarbanes-Oxley Act of 2002 are to improve the accuracy and reliability of corporate disclosure. Under Section 404 of the Sarbanes-Oxley Act, the external auditor has to report an assessment of the firm's internal controls and attest to management's assessment of those firm's internal controls. Material weaknesses in internal controls must be disclosed in the auditor and management reports. The objective of this study is to examine if firms reporting material internal control weaknesses under Section 404 have more earnings management compared to other firms. The results provide mild evidence that there are more positive and absolute discretionary accruals for firms reporting material internal control weaknesses than for other firms. Since the findings of ineffective internal controls by auditors under Section 404 may cause firms to improve their internal controls, Section 404 has the potential benefits of reducing the opportunity of intentional and unintentional accounting errors and of improving the quality of reported earnings.

Download or read book Market Reactions to the Disclosure of Internal Control Weaknesses and to the Characteristics of Those Weaknesses Under Section 302 of the Sarbanes Oxley Act of 2002 written by Jacqueline S. Hammersley and published by . This book was released on 2007 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under Section 302 of the Sarbanes Oxley Act, officers must evaluate the effectiveness of internal controls quarterly. We examine the stock price reaction to management's disclosure of internal control weaknesses and to their characteristics, controlling for other material announcements are made during the event window. We find evidence suggesting that some characteristics of the internal control weaknesses - their severity, management's conclusion regarding the effectiveness of the controls, their auditability, and how vague the disclosures are - are informative. In subsequent analyses, we find that the relation between returns and auditability holds for significant deficiencies and control deficiencies as well as for material weaknesses. However, the relation between returns and how vague the disclosure is is driven by the observations with material weaknesses. This suggests that the information content of internal control weakness disclosures depends on the severity of the internal control weakness.

Download or read book Market Uncertainty and Disclosure of Internal Control Deficiencies Under the Sarbanes Oxley Act written by Yongtae Kim and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines cross-sectional differences in stock market reactions to the disclosure of internal control deficiencies under Section 302 of the Sarbanes-Oxley Act. We hypothesize that the market punishment for internal control problems will be less severe for internal control disclosure that helps reduce market uncertainty around the disclosure. We also predict that such a relation is dependent on the types of disclosure and the market's prior knowledge of the credibility of firms' financial reporting. Consistent with our hypothesis, we find that when firms disclose their internal control deficiencies, their abnormal stock returns are negatively associated with changes in market uncertainty (e.g., changes in the standard deviations of daily stock returns) around the disclosure. We also find that the impact of the uncertainty reduction is greater for voluntary disclosures of non-material weakness, especially those made in the context of previous suspicious events. The negative impact of changes in market uncertainty on the abnormal stock returns remains intact even after controlling for possible simultaneity. An analysis using financial analysts' earnings forecasts dispersion as an alternative proxy for uncertainty confirms the results.

Download or read book An Analysis of Firms that Disclose Ineffective Internal Control Over Financial Reporting written by Mason C. Snow and published by . This book was released on 2017 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: In, 2002, Congress passed the Sarbanes-Oxley Act (SOX) to impose more strict regulation with regard to the way public companies manage financial information. This thesis examines companies that disclosed one or more material weaknesses (MWs) in internal controls over financial reporting (ICFR) during the post-SOX period.

Download or read book Can Short Sellers Detect Internal Control Material Weaknesses Evidence from Section 404 of the Sarbanes Oxley Act written by Zvi Singer and published by . This book was released on 2017 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether short sellers are interested in, and capable of, identifying firms with an upcoming revelation of Internal Control Material Weaknesses (ICMW). We show that short sellers accumulate positions in firms that are about to disclose ICMW under Section 404 of the Sarbanes-Oxley Act for the first time when internal control problems are severe. We find that the short interest build-up is mainly due to the use of private rather than public information, which suggests that their trades contain incremental prediction power of the upcoming internal controls failure. Furthermore, the ability of short sellers to predict ICMW is more pronounced in firms operating in poor information environments. Finally, we find no evidence that trades by short sellers prior to the ICMW disclosure creates a cascade of selling that leads to an overreaction of ICMW. Overall, we present evidence that corporate governance information in the form of ICMW is part of the short sellers' information set, and we establish a path through which ICMW impacts equity investors.

Download or read book Market Reaction to Control Deficiency Disclosures Under the Sarbanes Oxley Act written by Parveen P. Gupta and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Sections 302 and 404 of the landmark Sarbanes-Oxley Act require firms to periodically assess and report control deficiencies to the audit committee as well as to the SEC. Section 302 specifically directs company management to identify and report control deficiencies while Section 404 provides the discipline that forces companies to take the control assessment and reporting task seriously. Importantly, external auditors are required to opine separately on the effectiveness of their client's system of internal control over financial reporting and issue an adverse opinion on internal control in the presence of even a single material weakness. Prior to being mandated by the Sarbanes-Oxley Act, management was not required to assess and report on the state of internal controls in their company. Statement on Auditing Standards (SAS) #60, which provided guidance to the external auditors on these matters, afforded them a great deal of flexibility and judgment not only in determining what constituted a reportable condition but also limited their disclosure only to the audit committee of the board. In a recent speech, Donald T. Nicolaisen, the SEC's Chief Accountant, remarks that these new requirements are not only a major financial but also a significant cultural endeavor for registrants in the U.S. and abroad. Consequently, these new requirements have drawn uproar and concern from companies of all sizes and market capitalization. Given the outcry from companies and regulatory assertions that these disclosures are the best thing that has ever happened to the capital markets, we examine whether such control deficiency disclosures convey valuation-relevant information to the market. This issue is important because increasing disclosure requirements without any attendant effect on valuation would impose unnecessary deadweight costs. The disclosures employed in our study were not mandatory under Section 404 at the time our sample firms made them. While there may be many reasons why our sample firms report these deficiencies early, these disclosures may portend the effect to be faced by other firms when the Section 404 rule becomes binding. Consistent with the regulatory assertions, we find that such disclosures are associated with a negative stock price reaction, on average, indicating that such disclosures do indeed convey valuation-relevant information. This reaction is mitigated to some extent, but not fully, if management also discloses that remediation steps have been taken to correct the weaknesses identified in the disclosures. Additionally, the price reaction is less negative for firms employing a Big Four auditing firm. Conversely, the reaction is more negative for firms with larger current liabilities relative to total assets, which suggests that control weaknesses may have implications for increased default risk.

Download or read book Internal Control Weaknesses and Information Uncertainty written by Messod D. Beneish and published by . This book was released on 2014 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a sample of 330 firms making unaudited disclosures required by Section 302 and 383 firms making audited disclosures required by Section 404 of the Sarbanes-Oxley Act. We find that Section 302 disclosures are associated with negative announcement abnormal returns of -1.8 percent, and that firms experience an abnormal increase in equity cost of capital of 68 basis points. We conclude that Section 302 disclosures are informative and point to lower credibility of disclosing firms' financial reporting. In contrast, we find that Section 404 disclosures have no noticeable impact on stock prices or firms' cost of capital. Further, we find that auditor quality attenuates the negative response to Section 302 disclosures and that accelerated filers - larger firms required to file under Section 404 - have significantly less negative returns (-1.10 percent) than non-accelerated filers (-4.22 percent). The findings have implications for the debate about whether to implement a scaled securities regulation system for smaller public companies: material weakness disclosures are more informative for smaller firms that likely have higher pre-disclosure information uncertainty.

Download or read book Earnings Management and Return Earnings Association of Firms Reporting Material Internal Control Weaknesses Under Section 404 of the Sarbanes Oxley Act written by Kam C. Chan and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The main objectives of the Sarbanes-Oxley Act of 2002 are to improve the accuracy and reliability of corporate disclosure. Under Section 404 of SOX, an auditor has to report an assessment of a firm's internal controls and attest to management's assessment of the firm's internal control. Material weaknesses of internal controls must be disclosed in auditor and management reports. The objectives of this study are to examine if firms reporting material internal control weaknesses under Section 404 have more earnings management and lower return-earnings associations compared to other firms. The results provide mild evidence that there are more positive and absolute discretionary accruals for firms reporting material internal control weaknesses than for other firms. The findings also provide mild evidence that firms reporting material internal control weaknesses have lower return-earnings associations than other firms.

Download or read book Foreign Firms Mandatory Reporting of Material Weaknesses in Internal Control written by Maria T. Caban-Garcia and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The enactment of the Sarbanes-Oxley Act (SOX) of 2002 established several reforms to improve corporate governance and financial reporting practices for companies listed in US capital markets. Given the important role played by foreign firms in US capital markets, the present article discusses the early effects of SOX's regulation on foreign firms. Country- and firm-level data provide a descriptive analysis of the characteristics and trends in material weakness in internal controls reporting for firms cross-listed on US exchanges. The discussion includes a description of the implementation timeline of Section 404 for foreign issuers and compares some of these characteristics to reports from US firms. Understanding the characteristics of cross-listed firms, as well as country-specific qualities, is important to auditors and managers as they strive to maintain audit quality and improve internal control practices and corporate governance. This information is beneficial to regulators as these characteristics could have implications in the evaluation of foreign firms' compliance with Section 404 requirements.

Download or read book The Impact of the Sarbanes Oxley Act of 2002 Section 404 written by Patricia E. Scipio and published by . This book was released on 2012 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Handbook of Finance written by Frank J. Fabozzi and published by . This book was released on 2008-10-06 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "The Handbook of Finance is a comprehensive 3-Volume Set that covers both established and cutting-edge theories and developments in finance and investing. Edited by Frank Fabozzi, this set includes valuable insights from global financial experts as well as academics with extensive experience in this field. Organized by topic, this comprehensive resource contains complete coverage of essential issues—from portfolio construction and risk management to fixed income securities and foreign exchange—and provides readers with a balanced understanding of today’s dynamic world of finance. A brief look at each volume: Volume I: Financial Markets and Instruments skillfully covers the general characteristics of different asset classes, derivative instruments, the markets in which financial instruments trade, and the players in those markets. Volume II: Investment Management and Financial Management focuses on the theories, decisions, and implementations aspects associated with both financial management and investment management. Volume III Valuation, Financial Modeling, and Quantitative Tools contains the most comprehensive coverage of the analytical tools, risk measurement methods, and valuation techniques currently used in the field of finance."