The requirements in the Sarbanes-Oxley Act for outside audits of internal control may actually be penalizing companies that reveal problems with their controls, according to a new study.
The study, which appears in the new issue of the American Accounting Association’s journal The Accounting Review, found that not only do companies that give advance warning of internal-control problems gain nothing by their transparency but they are actually penalized compared to companies that divulge such problems only when forced to restate their finances, which is too late to be of help to investors.
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