The Effectiveness of the Sarbanes-Oxley Act of 2002 in Preventing and Detecting Fraud in Financial Statements

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Universal-Publishers, 2006 - Business & Economics - 236 pages
The collapse of Enron, WorldCom, and other large corporations in 2001 and 2002 motivated Congress to pass the Sarbanes-Oxley Act of 2002 (SOX). The purpose of this legislation was to restore investor confidence in the United States stock markets, and to prevent and detect fraud in financial statements as well. This dissertation examines the effectiveness of SOX for the latter purpose of preventing and detecting fraud, using statistical enforcement data presented by the Securities and Exchange Commission, and financial statement restatement numbers published by the Huron Corporation. The two methodologies utilized to analyze the data were the unpaired t test and the chi square test. Surveys were also emailed to executives and certified public accountants across the country to extract opinions as to the effectiveness of SOX. The statistical analysis results displayed that in 61% to 65% of the data sets, the numbers prior to the enactment of SOX were no different than the numbers subsequent to the enactment of SOX. The majority of the survey respondents feel that the benefits of SOX are not worth the costs, it is not effective in the prevention and detection of fraud in financial statements, and that it should be modified, but not eliminated entirely. While some sentiment exists that SOX is salvageable if revisions are executed, both the quantitative and qualitative analyses indicate support of the null hypothesis, that SOX is not effective in the prevention and detection of fraud in financial statements.
 

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Contents

Validity and Reliability
73
Data Processing and Analysis
74
Unpaired T Test
75
Chi Square Test
78
Methodological Assumptions
79
Limitations
81
Conceptual Hypotheses
82
RESULTS AND FINDINGS
84

Importance of the Study
14
Definition of Terms
16
Delimitations of the Study
22
Summary of the Problem
24
THE LITERATURE REVIEW
26
Passage of SOX
27
The House Committee Hearings
28
The Presidents Weights In
29
Reform of the Auditing Profession
30
Fraud Detection During the Audit
33
SAS No 99
36
Cohen Commission
37
Treadway Commission
40
COSO Commission
41
OMalley Commission
42
Corporate Governance and Management Reform
43
Corporate Management Reform
44
Treadway Commission
47
COSO Commission
48
Blue Ribbon Committee
49
Quality of the Legislation
50
One Year Later The Coates Study
55
Two Years Later
56
The House Financial Services Committee
57
Other Comments
59
The Zhang Study
60
METHODOLOGY AND PROCEDURES
62
Research Questions
63
Research Methodology and Approach
64
Research Design
65
Selection and Description of Data
68
Instrumentation
70
Chi Square Test
71
Description of Data Collection
85
Demographic Data
86
Results
87
Chi Square Test
90
Survey
94
NonPredicted NonSignificant Findings Discussion
96
Interpretation
97
Survey
99
Costs of Compliance with SOX
102
Costs of Financial Statement Restatements
104
Summary of Findings Analysis and Evaluation
105
SUMMARY CONCLUSIONS AND RECOMMENDATIONS
107
Methodology
109
Instrumentation
110
Procedures
111
Conclusion
112
Survey Conclusion
113
Alternative Explanations of the Findings
114
Survey Findings
115
Implications
116
Recommendations for Further Research
121
Summary
122
References
124
SOX Summary
150
SEC Enforcement Statistics With Formulas
163
CFTF Reports
171
Huron Consulting Group Financial Statement Restatements
174
SEC Reports on Administrative Procedures
177
Unpaired T Test Printouts
182
Chi Square Printouts
204
Survey
211
Survey Responses
214
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