Audit Research after Sarbanes-Oxley

The scrutiny auditing received following Enron's failure and the accounting scandals at Worldcom and other companies provides compelling evidence that auditing matters and is important. What is unclear, however, is whether auditing was sufficiently “broken” in the first place to warrant the radical reforms and changes effected by the Sarbanes-Oxley Act of 2002 (SOX). While there have been some high profile corporate failures and accounting scandals, the number of demonstrated audit failures as evidenced by successful litigation or U.S. Securities and Exchange Commission (SEC) sanctions is quite small and approaches an annual failure rate of close to zero. In addition, our interpretation of the academic…