Open AccessSOX Section 404 Twenty Years After: Reviewing Costs and Benefits
Author(s) -
Bianca Fischer,
Bernadette Gral,
Othmar M. Lehner
Publication year - 2020
Publication title -
acrn journal of finance and risk perspectives
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.122
H-Index - 2
ISSN - 2305-7394
DOI - 10.35944/jofrp.2020.9.1.008
Subject(s) - section (typography) , accounting , corporate governance , control (management) , earnings , earnings management , business , indirect costs , quality (philosophy) , cost–benefit analysis , economics , public economics , actuarial science , finance , political science , management , law , philosophy , epistemology , advertising
Some issues of the Sarbanes Oxley Act of 2002 are still discussed controversially in literature. Thereof, Section 404 concerning internal control over financial reporting is one of the most criticized parts. This article focuses on costs and benefits of the section and impacts on earnings management. Most authors agree that compliance costs of Section 404 far outweigh its benefits. However, long-term benefits are expected. Regarding earnings management, studies show that the section has positive effects such as increased earnings quality and improved internal control systems. Although the section is heavily debated in literature, there is consensus that SOX Section 404 greatly contributed to the improvement of quality of financial reporting and of corporate governance as a whole.