The SOX 404 control audit and the effectiveness of additional audit effort in lowering the risk of financial misstatements

  • Chan Li
  • K. K. Raman
  • Lili SunEmail author
  • Rong Yang
Original Research


We examine the effectiveness of additional audit effort in lowering the risk of financial misstatements for companies with internal control material weaknesses during three separate post-SOX time periods. Our findings suggest that additional audit effort (as proxied by abnormal audit fees) is effective in lowering the risk of financial misstatements for clients with weak internal controls during the Auditing Standard No. 2 regime (2004–2006), but not during the extant Auditing Standard No. 5 (AS5) regime or the earlier 2002–2004 pre-404 audit (but still post-SOX) time period. We contribute to the on-going debate about the potential benefits associated with the SOX 404 audit and, in particular, the emerging literature on the effectiveness, or lack thereof, of the SOX 404 audit in improving the assessment of control risk under the extant AS5 regime (Schroeder and Shepardson in Account Rev 91(5):1513–1541, 2016). Collectively, our findings are consistent with the notion that extant PCAOB concerns about internal control quality under AS5 may be valid.


SOX 404 audit AS2 AS5 Internal controls Additional audit effort Financial misstatements 

JEL Classification

M42 M48 



K. K. Raman acknowledges support from the Ramsdell Memorial Chair for Accounting at The University of Texas at San Antonio.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Katz School of BusinessUniversity of PittsburghPittsburghUSA
  2. 2.College of BusinessUniversity of Texas at San AntonioSan AntonioUSA
  3. 3.G. Brint Ryan College of BusinessUniversity of North TexasDentonUSA
  4. 4.Saunders College of BusinessRochester Institute of TechnologyRochesterUSA

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