December 8, 2021

SOX 404 Not Helping: Study

A recent study by Sarah Rice of Texas A&M and David Weber and Biyu Wu of the University of Connecticut has found that everyone's favorite section of the Sarbanes-Oxley Act of 2002 is falling short on expectations:

The study, which appears in in the new issue of the American Accounting Association’s journal The Accounting Review, found that not only do companies that give advance warning of internal-control problems gain nothing by their transparency but they are actually penalized compared to companies that divulge such problems only when forced to restate their finances, which is too late to be of help to investors.

Wait, wait, wait, wait, wait. Are they saying that a company, in the spirit of the law, that discloses internal control weaknesses in a timely fashion is no better off than if they just keept their traps shut about it until it's too late?!   

Yep, that's what they're saying.

"We find no evidence that penalties following a restatement are more likely for firms that fail to detect and disclose their control weakness as required,” said the study. “Instead, firms that do report their control weaknesses in a timely manner are generally more likely to face [varied] penalties in the event of a later restatement. These results are consistent with the disclosure of control weaknesses making it difficult for management to plausibly claim later that they had been unaware of the underlying conditions in the control environment that led to their restatements." 

Welp. Shall we pack it in then, opiners? 

[AT]

Latest Accounting Jobs--Apply Now:

Have something to add to this story? Give us a shout by email, Twitter, or text/call the tipline at 202-505-8885. As always, all tips are anonymous.

Comments are closed.

Related articles

New SOX In the U.K.? It’s (Probably) Coming Soon

The February gloom was broken recently by the news that the British government will be introducing reforms targeting company financial reporting and audit oversight. In truth, none of this should be a surprise. There have been several accounting scandals in recent years where the directors of various companies have been unscrupulous and their external auditors […]