Financial Reporting Precision: Measuring the Effectiveness of SOX
Presentation
Overview
Overview
Description
Although the frequency of widely publicized accounting scandals has declined in recent years, there is no positive evidence that the regulatory changes that resulted from the passage of SOX have been effective in satisfying the stated purpose of the act. Instead, since the stated purpose was to improve the accuracy and reliability of corporate disclosures, determining the effectiveness of SOX requires measurement of those exact attributes (and, the collective attribute, precision). In this paper, I develop formal definitions and usable measurement techniques for these three attributes, which I then validate using surveys administered to students with recent familiarity with the qualitative characteristics of accounting. Perhaps most important, I also present a mechanism for measuring the level of SOX compliance associated with a single set of financial statements (or individual amounts within financial statements), which should have implications for practitioners and researchers alike.
