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The discovery and reporting of internal control
deficiencies prior to SOX-mandated audits
(Hollis Ashbaugh-Skaifea, Daniel W. Collinsb, William R. Kinney Jr.c)
1. Introduction
This study investigates the economic factors that expose a firm to internal control risk and
management’s incentives to discover and report an internal control deficiency (ICD). Section
404 of the Sarbanes–Oxley Act (US Congress, 2002), denoted SOX requires that public
company financial statements filed on Form 10-K and Form 10-Q contain an assessment by
management of the design and operating effectiveness of its internal control over financial
reporting. Section 404 also requires that the external auditor, on an annual.