Hollis A. Skaife talks with
ScienceWatch.com and answers a few questions about
this month's New Hot Paper in the field of Economics &
Business.
Article Title: The discovery and reporting of
internal control deficiencies prior to SOX-mandated
audits
Authors:
Ashbaugh-Skaife,
H;Collins, DW;Kinney, WR
Journal: J ACCOUNT ECON
Volume: 44
Issue: 1-2
Page: 166-192
Year: SEP 2007
* Univ Iowa, Coll Business, Iowa City, IA 52242 USA.
* Univ Iowa, Coll Business, Iowa City, IA 52242 USA.
(addresses have been truncated)
Why do you think your paper is highly
cited?
Our study was one of the first studies to investigate a contentious section
of the Sarbanes-Oxley Act of 2002 that requires publicly traded firms to
assess and disclose the effectiveness of their internal control over
financial reporting.
Does it describe a new discovery, methodology, or
synthesis of knowledge?
Our study describes and provides new evidence on the economic determinants
of weak internal control over financial reporting.
Would you summarize the significance of your paper
in layman's terms?
"Section 404 reporting continues to
be debated in the financial
press."
Our paper explains the internal control reporting requirements of the
Sarbanes-Oxley Act of 2002, and identifies and documents the firm
characteristics that are associated with the existence and reporting of
internal control problems, which can reduce the reliability of firms'
financial reporting.
How did you become involved in this research, and
were there any problems along the way?
We became interested in this topic because of the debate in the popular
press over the costs and benefits of Section 404 of the Sarbanes-Oxley
legislation. Early on, it became clear that in order to gain a better
understanding of the cost/benefit trade-offs we needed to understand the
underlying causes of internal control problems. One problem we faced is
that firms' classifications of the severity of control problems were not
consistent across firms, due in part to the lack of clear regulatory
guidelines.
Where do you see your research leading in the
future?
In subsequent studies, we investigate the effects of internal control
weaknesses reported under Section 404 of the Sarbanes-Oxley Act on the
quality of firms' financial reporting and cost of equity capital. We
anticipate extending this line of research to the smallest public companies
that have yet to report under the Section 404 requirements.
Do you foresee any social or political implications
for your research?
Section 404 reporting continues to be debated in the financial press. Our
research provides insights into the benefits associated with firms having
effective internal control over financial reporting.
Hollis A. Skaife, Ph.D.
Associate Professor
The Wisconsin School of Business
University of Wisconsin-Madison
Madison, WI, USA
Keywords: Sarbanes-Oxley Act of 2002, Section 404
Sarbanes-Oxley.