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research summary

    Section 404 Compliance and Financial Reporting Quality
    research summary posted March 9, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 12.0 Accountants’ Reports and Reporting 
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    Title:
    Section 404 Compliance and Financial Reporting Quality
    Practical Implications:

    As is asserted in its summary, “this study provides evidence that the S404 compliance effort reduces the likelihood of issuing materially misstated financial statements, and suggests that S404 regulation is meeting its objective of improving the quality of financial reports.”

    For more information on this study, please contact Albert L. Nagy

    Citation:

    Albert L. Nagy (2010) Section 404 Compliance and Financial Reporting Quality. Accounting Horizons: September 2010, Vol. 24, No. 3, pp. 441-454.

    Purpose of the Study:

    As asserted in its introduction, this study examines whether the Sarbanes-Oxley Act Section 404 (S404) compliance efforts lead to higher quality financial reports. This study examines whether the regulators have achieved their objective by examining whether the S404 compliance efforts reduce the likelihood of issuing materially misstated financial statements. 

    Design/Method/ Approach:

    A logistic regression model is estimated using a sample of company data (from years 2005 and 2006) surrounding the S404 compliance threshold to measure the S404 compliance effect on the likelihood of issuing materially misstated financial statements.

    Findings:

    Study results, “show a significant and negative relation between S404 compliance and issuance of materially misstated financial statements."

    Category:
    Standard Setting
    Sub-category:
    Impact of 404