Audit Committee Member Support for Proposed Audit Adjustments: Pre-SOX versus Post-SOX Judgments

This study examines differences in audit committee member judgments before the Sarbanes-Oxley Act (“pre-SOX”) versus after the act was passed (“post-SOX”) as well as audit committee member perceptions of the effects of SOX. Based on experimental materials administered to 372 public company audit committee members (131 pre-SOX from DeZoort et al. 2003a and 241 post-SOX), we find that audit committee support for an auditor-proposed adjustment is significantly higher in the post-SOX period. Additional analyses reveal that the effect of SOX differs between audit committee members who are CPAs versus non-CPAs. Specifically, the greater audit committee member support for the proposed adjustment post-SOX is attributable to members who are CPAs. In general, audit committee members in the post-SOX period feel more responsible for resolving the accounting issue, perceive that audit committee members have greater expertise to evaluate the accounting issue, and also are more concerned with reporting accuracy and a need for conservative financial reporting than those in the pre-SOX period. We also find that post-SOX respondents who support the auditor's proposed adjustment have more favorable views of the benefits of SOX, and they believe more strongly that audit committees in the post-SOX period are more conservative and have more power than they did pre-SOX. We discuss implications and avenues for future research.