Internal Controls and Accounting Restatements Under Sarbanes-Oxley Regime: A Survey of Literature

Abstract

The Sarbanes-Oxley Act 2002 of the U. S. was passed to instil investor confidence in financial reporting following the spectacular collapse of high ranking firms in the US. Sections 302 and 404 provide clear guidelines to both management and their auditors on their respective roles as well as stipulating the penalties for non-compliance. The role of internal controls failures in corporate collapses cannot be overstated; however, not much attention has been paid to it in the past. Thanks to this act, the role of internal control over financial reporting has been recognized for some time now as an important component of corporate governance for both management and auditors (Kinney, 2000). Using mainly electronic searches, this critical review has found that scholars do not agree over the significance of sections 302 and 404 on internal control over financial reporting. Since the ACT was passed to improve the quality of financial reporting and to bring back investor confidence in the capital markets, the apparent inconsistencies over its impact on companies, provides opportunities for further research, especially from the UK companies perspective.