Corporate Governance in the Post-Sarbanes-Oxley Era: Auditors' Experiences

The Sarbanes-Oxley Act significantly expanded the responsibilities of auditors, management, and corporate governance actors such as the audit committee and the board. This interview-based research extends an earlier study conducted in 1999-2000 by examining auditors' experiences in working with corporate governance actors in the post-Sarbanes-Oxley era. Thirty audit managers and partners from three of the Big 4 firms participated in the study. In line with regulatory reforms and a monitoring perspective, auditors indicate that the corporate governance environment has significantly improved in recent years with audit committees that are substantially more active and diligent and possessing greater expertise and power to fulfill their responsibilities. In turn, auditors report relying to a greater extent on corporate governance information in planning and performing the engagement. However, results also suggest that at least some changes in governance may have been more form than substance. For example, of some concern, many auditors indicate that management is still seen as a key driver in determining auditor appointments and terminations. Further, management continues to be seen as a major actor in the corporate governance mosaic. Our results indicate that in many instances audit committees play a passive role in helping to resolve contentious financial reporting issues with management, with respondents indicating that the auditor and management often try to resolve issues before they come to the attention of the audit committee. Further, the requirements for CEO and CFO certification are reported by auditors to have a positive effect on the integrity of financial reporting. Our results are largely congruent, except that auditors indicate management has a major influence over the hiring and termination decisions of the external auditors.