Honors Theses and Capstones

Date of Award

Spring 2017

Project Type

Senior Honors Thesis

College or School

PAUL

Department

Accounting and Finance

Program or Major

Accounting

Degree Name

Bachelor of Science

First Advisor

Le Xu

Abstract

This thesis focuses on Sarbanes-Oxley Act, which is a United States federal law that sets new or expanded requirements for all U.S. public companies. Section 404 aims to ensure that all public companies have effective internal controls. Section 404 is not applied uniformly across different filers. This thesis focuses on the analyses of small companies as these companies, i.e. non-accelerated filers, got exemption from Section 404 (b), which requires a publicly-held company’s auditor to attest to, and report on, management’s assessment of its internal controls. Because this exemption allows non-accelerated filers to avoid significant compliance cost, the purpose of the thesis is to provide a trend analysis of changing proportion of non-accelerated filers from 2002-2016 to see if companies have taken advantage of the exemption only applicable to non-accelerated filers. I find that there was a larger proportion of non-accelerated filers right before the effective date of the exemption rule for Section 404 (b) in 2010. In addition, I find that the proportion of companies changing from accelerated to non-accelerated filers is the largest right before 2010. These results are consistent with the notion that non-accelerated filers have the incentive to avoid the huge cost to comply with Section 404 (b).

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