IU Researcher: Internal Control Pays

Assistant Professor Leslie Hodder of IU-Bloomington, along with co-researchers Messod Beneish and Mary Billings, have recently published results indicating a drop of 1.5-2% (closer to 3% without a Big Four auditor) if a company discloses internal control weaknesses in compliance with Sarbanes-Oxley requirements. She attributes the drop to either greater perceived risk or costs needed to correct the problem. A point of emphasis is that the drop occurs even if the financials receive an unqualified opinion.

In the ongoing debate over whether costs of Sarbanes-Oxley exceed benefit, this research clearly will buttress those supports the SEC, PCAOB and others which favor the new regulations.