| Study one. The first study analyzes the impact of internal control quality on audit delay following the implementation of the Sarbanes-Oxley Act (2002) (SOX). Consistent with our expectation, we find that the presence of material weakness in ICOFR is associated with longer delays. The types of material weakness also matter. Compared to specific material weakness, general material weakness is associated with longer delays. Additional analyses indicate that companies with control problems in personnel, process and procedure, segregation of duties, and closing process experience longer delays.; After controlling for other impact factors, this study also documents a significant increase in audit delay associated with the fulfillment of the SOX Section 404 ICOFR assessment requirement. This suggests that Section 404 assessments have made it more difficult for firms to comply with the SEC's desire to shorten 10-K filing deadlines. Our finding thus supports and helps explain the SEC's decisions in 2004 and 2005 to defer scheduled reductions in 10-K filing deadlines (from 75 days to 60 days) for large, accelerated filers.; Study two. This paper examines the impact of adverse auditors' internal control opinions, recently mandated under Section 404 of the Sarbanes-Oxley Act of 2002, on auditor realignments. Our findings suggest that adverse SOX 404 opinions, both actual and prospective, are an important determinant of auditor realignments. Specifically, we find companies receiving, or expecting to receive, adverse SOX 404 reports are more likely to dismiss their auditors. Likewise, auditors are more likely to resign from clients receiving, or expected to receive, such reports. Our evidence also indicates resignations are more strongly associated with general (pervasive) weaknesses than with specific weaknesses, and that Big 4 auditors are less likely to serve as successor auditors when the prior auditor resigned from companies with material weaknesses, particularly general material weaknesses. Our procedures control for many other factors previously associated with auditor realignments, but adverse SOX 404 opinions are the most consistently significant determinants of dismissals and resignations across numerous analyses.; Study three. This paper investigates whether client importance affects auditor independence within the local offices of audit firms. Client importance is measured as the proportion of audit fees, non-audit service fees, or total fees that a client contributes, to the total revenue earned by the individual audit offices. Auditor independence is measured as the auditor's propensity to issue a going-concern opinion. The paper also examines the change of relations between fee ratios and auditor reporting decisions from the pre-SOX (2001) to post-SOX (2003) period.; The results show no association between audit fee ratio, non-audit fee ratio, or total fee ratio, and the auditor's propensity to issue a going concern opinion in 2001. However, there is evidence indicating positive relations between audit fee ratio and total fee ratio, and the auditor's propensity to issue a going concern opinion in 2003. Further examination of each category of non-audit fees also provides no support for the regulators' concern that auditor independence will be impaired because of high non-audit service fees. |
