In 2002, Congress passed the Sarbanes-Oxley Act, which requires firms to assess internal controls and report internal control weaknesses. My study examines the causes and consequences of material weaknesses (MW) reported under Section 302 of SOX. First, I investigate whether firms that report MW are associated with less effective audit committees and boards of directors. Using 184 firms that reported MW and a matched-pair sample of control firms, I find that firms with lower audit committee financial expertise, smaller audit committees, and lower board independence are more likely to have MW. Second, I examine whether the managerial labor market imposes penalties on top management, audit committees, and boards of directors for internal control failures. I find that MW firms have significantly higher turnover of their audit committee members and outside directors than the control firms following the MW detection. Audit committee members and outside directors in the MW firms also lose more outside directorships than their counterparts in the control firms. Additional analyses show that the extent of reputational penalties increase with the severity of the MW detected. Third, I examine whether the MW firms improve their governance structures upon the MW detection. The results indicate that MW firms experience greater improvement in their governance structures than the control firms. By the second year following the MW detection, the MW and control firms no longer differ in terms of audit committee independence, audit committee financial expertise, audit committee size, and board independence. Last, I examine whether the market reacts positively to the improvement in governance structures. I find a positive relation between the two-year buy-and-hold abnormal returns and the MW firms improvement in audit committee size and board independence. This result is consistent with the improvement in governance structures restoring investor confidence in financial reporting.

This study examines how reliance on the client’s internal audit function (IAF) affects auditors’ ability to persuade management to accept material weakness assessments of detected internal control deficiencies. I further investigate whether auditors’ ability to persuade management to accept material weakness assessments depends on the subjectivity the control deficiency assessment to varied interpretations (ambiguity). I apply group affiliation and persuasion theories to hypothesize that management will have higher group identification with the IAF than with the auditors. I predict that management’s group affiliation will lead them to be more accepting of auditors’ internal control assessments when the auditors rely on the client’s IAF than when auditors do not. Further, I hypothesize that the greater the ambiguity in the internal control deficiency assessment, the more persuaded management will be to accept the auditors’ control assessment in situations where the auditors rely on the IAF than when the auditors do not. I conduct an experiment using a 2 X 2 between-subjects design in which I manipulate auditors’ reliance on the client’s IAF during tests of the client’s internal controls (rely or not rely) and the level of ambiguity in the internal control deficiency assessment (less ambiguous or more ambiguous) in a SOX 404 Internal Controls Over Financial Reporting (ICFR) audit setting. The study’s findings provide evidence that relying on the client’s IAF can improve auditors’ likelihood of persuading the client when control assessments are more open to varied interpretations. This study sheds light on a previously ignored benefit of using the client’s IAF – as a persuasion tactic. Thus, my research contributes to two literature streams: factors influencing auditor-client negotiations and the effects of using the IAF on audit engagements. These results provide both practical and theoretical insights to academics, practitioners and auditing standard setters.

This study explores the relationship between an individual's current professional occupation and the effect of the order of information on their evaluation when making internal control effectiveness judgments. The Sarbanes-Oxley Act (SOX) requires a new mindset for individuals that have responsibility for the internal controls in place at an organization. SOX requires both auditors and management to evaluate the effectiveness of the internal controls over financial reporting. Prior to the implementation of SOX, auditors were required to evaluate internal controls and their effect on the reliability of the financial statements; however, neither group was required to provide an opinion to the public regarding the findings of the evaluation. This study utilizes a within- and between-subjects research design, using the subjects' occupation (auditor or management) as one independent variable, and manipulating the order in which the cases are received by the subjects for the second independent variable. For each case, the subjects were provided three internal control judgments: effectiveness and efficiency of operations, reliability of financial reporting, and Sarbanes-Oxley required internal control effectiveness judgment. Additionally, subjects indicated their reliance on each of the internal control effectiveness cues included by allocating 100 points among each of the six cues included in the instrument. Based on the results of the current study, auditors and management did not provide different judgments. Additional analyses were conducted to explore whether experience impacts the self-insight individuals have into their reliance on cues when providing judgments. Findings did not indicate that subjects with greater experience were more likely to have greater insight into their reliance on information. The findings suggest that neither role nor case ordering affected the subjects' professional judgment. Overall, auditors and management did not provide statistically significant different judgments in relation to Sarbanes-Oxley judgments. The similarity in judgments should provide some reassurance to auditors and investors that given no guidance but the same information for judgments, management and auditors will come to similar conclusions regarding the effectiveness of internal controls over financial reporting. / Ph. D.

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This paper is about Sarbanes-Oxley Act that was passed in response to the financial scandals such as Enron and WorldCom. SOX created organization PCAOB that has 6 auditing standards in its portfolio. My thesis is aim at Auditing standard no. 5. IBM was also affected by this law and so the thesis is focused on internal controls, testing and quarterly certification. At the end, there is a part about the relationship between IBM and its customers who are under this law as well.

The thesis deals with the Sarbanes -- Oxley Act of 2002 (SOX). Reasons leading to its acceptance and the consequences are analysed. The costs and benefits of SOX implementation are compared from the individual and global view. The process of implementation is explained on the example of purchasing and account payable.

Master's thesis is referring the importance and requirement of internal audit in middle sized enterprises. It summarizes theoretical basis for the implementation of internal audit's profession and its legislative environment. Thesis is focused on the analysis of the processes of administration and record keeping of leasing agreements in corporation. Based on the analysis, solutions and measures concerning internal controls are proposed. Goal of the Master's thesis is to refer the importance of establishing and evaluation of the internal control processes. Subject of internal audit are not only non-functioning processes but also internal controls, which can be well established and functioning but management has no feedback about their efficiency.

Occupational fraud is a growing business risk that is causing greater financial losses in small businesses than large businesses. Business owners lose approximately 5% of their revenues due to occupational fraud. The purpose of this multiple case study was to explore the strategies used by some business owners of small restaurants to reduce occupational fraud. The fraud triangle theory was the conceptual framework for this study. Three small restaurant owners from Puerto Rico participated in face-to-face, semistructured interviews to reveal their successful strategies to minimize fraud. The data collection process also included business documents and researcher observations that assisted in establishing methodological triangulation. Using Yin's 5-step process, data were coded and analyzed to identify emergent themes. The primary emergent themes obtained from data analysis revealed that owner monitoring, analytical procedures, and segregation of duties are effective strategies to minimize employee fraud. Participants revealed that the implementation of these strategies may reduce organizational losses associated to fraud. The findings of this study may contribute to social change by reducing fraud activities, business failures, unemployment level, and criminality rate while promoting trust between community members and their institutions.

The following is a conceptual study that seeks to bring together the Innovation System concept and the internal audit profession to develop a universal and transferable audit framework that aims to test organizational compliance against established internal controls and audit criteria. For this study, the literature surrounding innovation systems was reviewed in order to uncover internal controls within the system that public sector organizations such as governments are responsible for implementing. Findings from the literature review were then validated through consultation with innovation leaders in the Canadian federal government; they also 'contextualized' the findings within the Canadian federal public sector. Additional internal controls and audit criteria were identified through a content analysis of a sample of 11 internal audits conducted by Government of Canada departments and agencies. The internal controls derived from these sources were the basis for developing audit criteria that could be tested for each of the internal controls respectively. The Innovation System internal controls identified within this study were governance, monitoring, strategic decision-making, and oversight; stakeholder/actor interactions and knowledge and information exchange/flows; supporting policy and funding; incentives for private investment and adoption of innovation; and intellectual property rights. A total of 60 audit criteria were created and included in the comprehensive audit framework at the end of this study.

Yes / This paper investigates whether shareholder value is affected by non-compliance with the prescriptions of a principle-based ‘comply or explain’ sys-tem of corporate governance in the context of the global financial crisis of2007–2009. Using System Generalized Method of Moments estimates to controlfor different types of endogeneity, the main findings of this paper suggest thatnon-compliance with the UK Corporate Governance Code adversely affectsshareholder value. Furthermore, ex-post estimates reveal that compliance withcertain corporate governance mechanisms is more beneficial than others. Withregard to this, compliance with provisions related to board independence ismore important than complying with performance-related pay requirements ofthe code. These findings have implications for policy makers and financialinstitutions regarding the usefulness of compliance with a prescribed code ofcorporate governance, specifically during periods of financial distress.