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    The Effectiveness of SOX Regulation: An Interview Study of...
    research summary posted April 15, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 07.0 Internal Control, 07.05 Impact of 404 on Fees and Financial Reporting Quality, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    The Effectiveness of SOX Regulation: An Interview Study of Corporate Directors
    Practical Implications:

    A large majority of the directors interviewed for the purpose of this study maintained that, costs aside, SOX had positively impacted the quality of financial reporting. This can be supported by the decline in major frauds since the passage of the Act. On the downside, several directors also noted that SOX had negatively impacted corporate risk taking. Overall, corporate directors were by and large supportive of the SOX regulation. This conclusion runs counter to the typical opposition that corporate America has to any additional regulation.

    For more information on this study, please contact Jeffrey R. Cohen.


    Cohen, J. R., C. Hayes, G. Krishnamoorthy, G. S. Monroe, and A. M. Wright. 2013. The Effectiveness of SOX Regulation: An Interview Study of Corporate Directors. Behavioral Research in Accounting 25 (1).

    audit process; corporate governance; qualitative research; risk management; Sarbanes-Oxley Act.
    Purpose of the Study:

    The Sarbanes-Oxley Act (SOX) was enacted in July 2002 in response to a number of significant financial reporting failures. This legislation significantly expanded the authority and responsibilities of the audit committee and board in overseeing financial reporting and internal controls. This study was conducted to provide insights into the effectiveness of SOX regulation from the perspective of corporate directors. By examining these director’s experiences of the impact of SOX, the authors aimed to discover how public corporations have responded to the legislation. Specifically, this study attempts to analyze the effectiveness of SOX with respect to achieving high-quality financial reporting.

    Design/Method/ Approach:

    The authors interviewed 22 experienced public company directors in 4 cities: Boston, Los Angeles, Chicago, and New York. The directors were chosen with a view to capture a cross-section of corporate governance experience, industries, and company size. The interviews were conducted over a 5 week period in 2007 just before the financial crisis of late 2007. The interviews varied in length from 30 to 60 minutes. All interviews were conducted by a single person in the offices of the participants, with the exception of one interview that was conducted by telephone. The interviews were guided by a pre-determined set of interview questions based on Cohen et al (2010), with additional questions added regarding SOX provisions and other SOX-related academic literature.

    • Directors have experienced enhanced expertise, attitude, process, and power and authority of the audit committee.
    • Post-SOX internal scope, level of responsibility, and status of internal audit functions have seen substantial improvement.
    • Compliance with SOX has led to greater empowerment of the audit committee.
    • CEO/CFO certification has increased CEO ownership of the integrity of financial disclosure and has been pushed down through the organization.
    • Management is still actively involved in the decision management process, including such matters as the appointment of the auditor.  
    Corporate Matters, Internal Control, Standard Setting
    Audit Committee Effectiveness, Impact of 404 on Fees and Financial Reporting Quality, Impact of SOX