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Section
404 Reporting and Attestation Reports: A Descriptive Analysis
of Attestation Reports Issued for ICFR During the First
Two Years of Section 404 Reporting --
Helen M Roybark
On
June 20, 2007, the US Securities and Exchange Commission
(SEC) amended its Section 404 regulations. Section 404 of
the Sarbanes-Oxley Act (USHR, 2002) requires all Exchange
Act reporting companies, except investment companies registered
under Section 8 of the Investment Company Act, to assess
the effectiveness of their Internal Control over Financial
Reporting (ICFR). In addition, public accounting firms that
issue financial statement audit reports for SEC registrants
also must attest to, and report on, the effectiveness of
issuers' ICFR. The purpose of this paper is two-fold. First,
an overview of the current Section 404 reporting requirements
is provided. SEC registrants and auditors need to understand
the amended reporting requirements. Second, a descriptive
analysis of the first two years of attestation reports on
SEC registrants' ICFR is presented. This analysis is important
for developing expectations about ICFR across SEC registrants,
including `accelerated' foreign filers that must begin complying
with Section 404 for the fiscal years ending on or after
July 15, 2007, and `non-accelerated' filers that must begin
complying with Section 404 for fiscal years ending on or
after December 15, 2007.
©
2008 The Icfai University Press. All Rights Reserved.
Prior
Employment and Auditor Independence --
Zulkarnain Bin Muhamad Sori and Shamsher Mohamad
The
practice of companies hiring accounting and finance personnel
from their external audit firms becomes the focus of various
parties due to the potential impact of such practice on
the quality of audit and financial reporting. This study
investigates the prevalence of the `revolving door' personnel
in the Malaysian corporate scene through interviews with
senior loan officers and managers of public listed companies.
The information gathered seems to suggest a minimal impact
of this practice on auditor independence.
©
2008 The Icfai University Press. All Rights Reserved.
Does
Auditor Industry Specialization Matter? Evidence from the
Bond Market -- Ali R Almutairi
This
paper examines the association between the employment of
industry specialist auditors and the cost of debt of a client
company. Unlike auditors without industry expertise, auditors
with industry expertise can improve the credibility of financial
statements better (Balsam et al., 2003 and Krishnan, 2003)
and verify management's forecasts, thereby minimizing the
managements' discretion in applying the accounting principles
and standards (Kwon, 1996). This suggests that the industry
specialist auditors can enhance audit quality. Consequently,
clients of industry specialist auditors are expected to
achieve more significant economic benefits than clients
of non-specialist auditors. The study hypothesized that
the clients of industry specialist auditors are more likely
to enjoy a lower cost of debt than the clients of non-industry
specialist auditors. In addition, this study hypothesizes
that the marginal economic value added by the auditor industry
specialization varies between financially troubled clients
and financially healthy clients that seek external financing.
The results indicate that the clients hiring specialists
enjoy better credit rating and lower cost of debt than the
clients of non-specialists, and this economic value is more
significant for risky firms than the healthy ones. However,
these findings do not hold for each proxy of auditor industry
specialization.
©
2008 The Icfai University Press. All Rights Reserved.
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