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Conference Paper: Unintended consequences of Section 201 of the Sarbanes-Oxley Act

TitleUnintended consequences of Section 201 of the Sarbanes-Oxley Act
Authors
Issue Date2010
Citation
The 2010 Annual Meeting of the American Accounting Association (AAA) and Conference on Teaching and Learning in Accounting, San Francisco, CA., 31 July-4 August 2010. How to Cite?
AbstractThis paper provides an economic framework to analyze the consequences of Section 201 of the Sarbanes-Oxley Act (SOX), which prohibits auditors from providing many non-audit services (NAS) to their public company audit clients. In the model auditors strategically choose costly audit effort and audit report that involves balancing the expected litigation loss with the loss of future consulting fees that can be earned from providing NAS to the same client. I show that Section 201 of the SOX could result in auditors’ issuing audit reports faithfully, but that only comes at a cost of decreasing audit effort. If the adverse direct impact on the synergy between audit and NAS has to be significant in order to ensure faithful reporting, this regulatory change might also decrease the reliability of audit reports and the efficiency gain that can be obtained from an audit. My analysis thus shows that Section 201 of the SOX may have some unintended negative consequences.
Persistent Identifierhttp://hdl.handle.net/10722/132209

 

DC FieldValueLanguage
dc.contributor.authorChan, DKWen_US
dc.date.accessioned2011-03-21T09:01:47Z-
dc.date.available2011-03-21T09:01:47Z-
dc.date.issued2010en_US
dc.identifier.citationThe 2010 Annual Meeting of the American Accounting Association (AAA) and Conference on Teaching and Learning in Accounting, San Francisco, CA., 31 July-4 August 2010.en_US
dc.identifier.urihttp://hdl.handle.net/10722/132209-
dc.description.abstractThis paper provides an economic framework to analyze the consequences of Section 201 of the Sarbanes-Oxley Act (SOX), which prohibits auditors from providing many non-audit services (NAS) to their public company audit clients. In the model auditors strategically choose costly audit effort and audit report that involves balancing the expected litigation loss with the loss of future consulting fees that can be earned from providing NAS to the same client. I show that Section 201 of the SOX could result in auditors’ issuing audit reports faithfully, but that only comes at a cost of decreasing audit effort. If the adverse direct impact on the synergy between audit and NAS has to be significant in order to ensure faithful reporting, this regulatory change might also decrease the reliability of audit reports and the efficiency gain that can be obtained from an audit. My analysis thus shows that Section 201 of the SOX may have some unintended negative consequences.-
dc.languageengen_US
dc.relation.ispartofAmerican Accounting Association 2010 Annual Meetingen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleUnintended consequences of Section 201 of the Sarbanes-Oxley Acten_US
dc.typeConference_Paperen_US
dc.identifier.emailChan, DKW: derekchan@business.hku.hken_US
dc.identifier.authorityChan, DKW=rp01046en_US
dc.description.naturepostprint-
dc.identifier.hkuros177994en_US
dc.description.otherThe 2010 Annual Meeting of the American Accounting Association (AAA) and Conference on Teaching and Learning in Accounting, San Francisco, CA., 31 July-4 August 2010.-

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