Economic Consequence Of SOX Section 404 Implementation And Analysis Based On Chinese Companies' Compliance

At the beginning of 21st century, in response to a series of high-profile scandals such as the cases of Enron and WorldCom, Congress passed the Sarbanes-Oxley Act (hereafter, SOX) in July 2002. The purpose of the SOX is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws and finally rebuild investors' confidence in the capital market. The provisions of SOX involve accounting, independent auditing and corporate governance. Particularly, the Section 404 imposes strict provision on internal control.It has been five years since the enactment of SOX. During this period, there seems to be endless debates on Section 404. What's the impact of the implementation of Section 404? What's the result after Chinese companies which go public in the capital market of US implementing Section 404? Is there any useful experience for China on the establishment of internal control disclosure rules of public companies?To find the answers to these questions, this dissertation firstly discusses the impact of the implementation of Section 404, including the implementation costs and benefits and the relationship between them, according to the results of both empirical researches and surveys performed by some American organizations such as FEI and CRA. Secondly, this dissertation collects the information related to internal control of Chinese companies which go public in the capital market of US through their annual reports during 2002 and 2007. Then this dissertation analyses the results of these Chinese companies' implementation of Section 404 and further discusses the differences between internal control disclosure in US and in China. Finally, this dissertation provides some suggestions on the establishment of internal control disclosure rules of public companies in China based upon the foregoing conclusions.