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

Hammersley, Jacqueline S.; Myers, Linda A.; Shakespeare, Catherine

doi:10.1007/s11142-007-9046-z

Cited by 445 publications

(221 citation statements)

References 21 publications

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“…We also contribute to research on the economic consequences of Section 404 internal control provisions including compliance with filing deadlines (Ettredge et al 2006) and disclosure of weaknesses in internal controls (Ogneva et al 2007;Beneish et al 2008;Hammersley et al 2008;Ashbaugh-Skaife et al 2009). With regard to the former, we find that late filing increased around initial compliance with Section 404.…”

Section: Introductionmentioning

confidence: 99%

Did accelerated filing requirements and SOX Section 404 affect the timeliness of 10-K filings?

et al. 2011

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This paper examines the effect of Sarbanes-Oxley provisions on 10-K filing delays. We find that tightened filing deadlines for accelerated and large accelerated filers are not associated with changes in the incidence of late filing. While Section 404 compliance does not affect filing timeliness for firms with effective internal controls, we find that about half the firms disclosing internal control weaknesses are late filers. As a consequence, many Section 404 material weakness firms experience negative abnormal returns around late filing notifications before filing the 10-K. Lastly, we find that market reactions to late filing notifications are more negative when management provides no meaningful explanation for the delay, consistent with managers' incentives to withhold bad news.

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Section: Introductionmentioning

confidence: 99%

Did accelerated filing requirements and SOX Section 404 affect the timeliness of 10-K filings?

et al. 2011

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“…Material weakness disclosures are associated with significantly negative stock returns (Beneish et al 2008;Hammersley, Myers, and Shakespeare 2008) ICDEF404_A is an indicator variable that equals one if the audit report identifies an ICOFR deficiency in the first fiscal year (after the IPO) the auditor opines on the effectiveness of ICOFR, and zero otherwise. The independent variable of interest, AU9550, is an indicator variable equal to one if the audit report included in the registration statement states that the auditor was not engaged to audit the effectiveness of ICOFR and, accordingly does not express an opinion thereon, and zero otherwise.…”

Section: Hypothesismentioning

confidence: 99%

Are Voluntary Internal Controls-Related Audit Report Disclosures Informative in IPOs?

Czerney

2015

SSRN Journal

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Initial public offering (IPO) companies are exempt from Section 404 of the SarbanesOxley Act of 2002, leaving investors to assess the quality of an IPO company's internal controls, which affect the quality of management-provided financial information, without an opinion on internal controls effectiveness from management or the external auditor. When not engaged to opine on the effectiveness of internal controls, auditing standards permit auditors to voluntarily state that their opinion does not extend to internal control effectiveness. Given auditors' limited ability to distinguish financial reporting quality in the unqualified audit report, the costly nature of audit report modifications, and auditors' litigation risk concerns, these voluntarily audit report iii ACKNOWLEDGEMENTS

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“…Regulatory intervention has been the driving force for the majority of the archival auditing studies (DeFond and Zhang, 2013). Several studies examine the impact of SOX on ERCs or other measures of perceived audit quality; for example, Hammersley et al (2008) report that stock returns were significantly less negative if a firm engaged a Big 4 auditor when firms disclosed internal control weaknesses during the period 2002-2005. However, more recent studies show no significant difference between Big 4 and non-Big 4 auditors or between Big 4 and second-tier auditors; for example, using the sample period -2006, Chang, Cheng, and Reichelt (2010 provide empirical evidence that firms switching from Big N auditors to non-Big N auditors experience non-negative stock returns. This finding suggests that market participants perceive no difference between the audit quality of Big N auditors and non-Big N auditors.…”

Section: Post-sox Periodmentioning

confidence: 99%

Discussion on “Big N Auditors and Earnings Response Coefficients – A Comparison Study between the US and China”

Joanna

2014

China Account Financ Rev

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Research on auditor reputation and clients’ financial reporting quality can be traced back to Teoh and Wong’s (1993) study, which provides empirical evidence of Big 8 audit firms having higher financial reporting credibility than non-Big 8 audit firms in the US market. In their study, Du and Zhou (hereinafter, DZ) replicate Teoh and Wong (1993) using a longer and more recent sample period in the US (1983-2012)2 and China (1995-2012) to examine whether the positive association between Big N auditors and perceived audit quality (ERCs) still holds after a major regulatory intervention in early 2000 and to compare this association in the US and China. This comparison is important because China is the largest emerging economy and the second largest economy in the world. DZ’s comprehensive evidence helps us to better understand if market reaction to ERCs in China differs from that in the US. I also commend that DZ provide detailed information on the market shares of Big N auditors in the US and Chinese markets respectively during this long sample period, demonstrating that while Big N auditors play a dominant role in the US market, their market shares are much smaller in the Chinese market.

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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

Cited by 445 publications

References 21 publications

Did accelerated filing requirements and SOX Section 404 affect the timeliness of 10-K filings?

Did accelerated filing requirements and SOX Section 404 affect the timeliness of 10-K filings?

Are Voluntary Internal Controls-Related Audit Report Disclosures Informative in IPOs?

Discussion on “Big N Auditors and Earnings Response Coefficients – A Comparison Study between the US and China”

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