（2008）Financial Reporting in the Sarbanes-Oxley Era：Have Reforms Improved the Quality of Reported Earnings？.pdfVIP

Proceedings of ASBBS Volume 15 Number 1 FINANCIAL REPORTING IN THE SARBANES-OXLEY ERA: HAVE REFORMS IMPROVED THE QUALITY OF REPORTED EARNINGS? Wilson, Thomas E., Jr. University of Louisiana at Lafayette tw@ ABSTRACT Recent years have seen dramatic changes in the corporate governance landscape with both the enactment of the Sarbanes-Oxley Act of 2002 and increased levels of director liability. The changes followed a series of highly publicized scandals, such as Enron, that highlighted weaknesses in the system governing the financial reporting of p ublic firms. Among the reforms are: a requirement that firm management certif y the accuracy of their company’s financial stat ements; new rules increasing the financial expertise of corporate audit committees; and a requirement that a firm develop reliable internal controls over financial reporting. Adding to the formal requirements of Sarbanes-Oxley are increases in the potential liability of corporate directorsfor not restraining management manipulation of financial results. However, the newness of many of these reforms has necessarily limited empirical evidence as to their effectiveness. Has the ability offirms to manipulate their reported financial results been reined in by these provisions? This study provides some preliminary evidence regarding t his issue by examining the quality of the earnings reported by public companies both before and after the passage of SOX. Following pri or research, unexpected discretionary accruals are employed as a proxy for earnings quality. Financial results from over 4,000 firms are examined for the years 2000 – 2005, a period before and after the enactment of the Sarbanes-Oxley Act. Surprising, the results indicate no incre