An exploration of the choice to comply voluntarily with SOX section 404(b)
ISSN: 0268-6902
Article publication date: 23 September 2019
Issue publication date: 8 January 2020
Abstract
Purpose
Central to the Sarbanes–Oxley Act was a requirement that every company have an audit of its internal control over financial reporting. However, there were concerns that this requirement was overly burdensome, from a financial perspective, for small businesses. This concern promoted several delays in enforcing the law for small companies and ultimately caused congress to permanently exempt small businesses. Yet, there are some small companies that voluntarily elect to comply with the law. The purpose of this paper is to explore why these companies elect to incur these costly audits.
Design/methodology/approach
Using a sample of 5,834 non-accelerator US firms, this paper uses a robust logistic regression model to examine why some firms comply voluntary with SOX Section 404(b).
Findings
This study shows that small companies getting audits of internal controls may be doing so to restore investor confidence after reporting failures, to appear credible prior to raising funds, as a response to organizational changes, or in anticipation of being required to comply.
Practical implications
This study provides regulators with an improved understanding of when it is necessary to implement mandatory rather than voluntary guidance.
Originality/value
This study is the first to document why a client would voluntarily comply with SOX Section 404 (b).
Keywords
Citation
Blankley, A., Hurtt, D. and MacGregor, J. (2020), "An exploration of the choice to comply voluntarily with SOX section 404(b)", Managerial Auditing Journal, Vol. 35 No. 1, pp. 93-110. https://doi.org/10.1108/MAJ-10-2018-2023
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited