The Quality of Financial Reporting After the Passage of Sarbanes-Oxley a

2946 Words Nov 10th, 2011 12 Pages
Research Proposal The Quality of financial Reporting after the passage of Sarbanes-Oxley Act Dr. Hassan Ahmed Assistant Professor at Cameron University

Abstract The complexity of business environment necessitates a set of required disclosures in a timely fashion. The full disclosure principle under U.S. GAAP is based on a vague definition that cannot be clearly implemented. The cost of disclosures can be significantly large and can have a negative impact on companies’ future earnings (small businesses). The purpose of this article is to examine the disclosure establishment of pre and post Enron, the effect of those disclosures on both corporations and on potential investors and to examine whether financial reporting quality
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Arthur Levitt’s top priority throughout his tenure with SEC was, to protect potential investors. Mr. Levitt’s policy was to increase the quality of financial reporting and strengthen the role of the corporate audit committees. Contingent liabilities are often referred as off-balance sheet activities and they are neither recognized as assets or liabilities nor they are reported on the balance sheet simply because GAAP does not recognize them as such. Enron and many other large companies were successful to keep billions of dollars of debt off-balance sheet (Chandra, et al, 2006). Title 4 section 401, j of SOX’s enhanced financial disclosures required the disclosure of all material off balance sheet transactions, obligations, arrangements and any material current or future that will have an effect on the financial condition (SOX, 2002). Economics and Accounting literature devoted considerable amount of time to analyze the cost-benefit of SOX and found that US firms incur 6.1 billion was spent of manpower, IT and consulting services (CFO, Bergen 2004 and 2005). The debate of whether the cost of complying SOX is cost effective, is an impetus toward

a policy change, however, one can ask, ever since the SOX implementation, how the quality of financial reporting has effected? Research Question and Hypothesis Development Many studies have addressed disclosure mismanagement of financial statements before and after Enron scandal, however, the few studies that have tackled
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