Sarbanes-Oxley Research Articles

Sarbanes-Oxley and the New Form 990

Eighty-five arts and culture nonprofits were surveyed to determine the extent to which their financial and managerial practices conform to Sarbanes-Oxley and the New Form 990. Approximately half of the sample had audit committees that included unpaid financial experts. Almost all of the nonprofits engaged external accountants or CPA firms to conduct annual audits, but only 40% required their ED or CFO to sign the financial statements. Approximately half of the nonprofits had conflict of interest forms, written ethics policies, and whistle-blower policies. According to the results, the most important reason for voluntarily complying with Sarbanes-Oxley (SOX) was because it promotes sound financial management and “contributes to an internal culture of transparency.” Compliance was less motivated by donor retention, board directives, or fear of governmental regulation. This survey found that the size of a nonprofit’s annual operating budget and its age are directly related to its level of compliance with SOX.

Providing System Compliance Training to Accountants of a Global Pharmaceutical Company: The Switzerland Case

On July 30, 2002, President George W. Bush signed the Sarbanes-Oxley Act of 2002 (2002) into law. The legislation was crafted by the United States Congress to address issues related to accounting improprieties which came to light during the Enron scandal. The specific purpose of the legislation was To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes (116 Stat. 745). In order to comply with the law's requirements, financial officers of publicly-traded companies were now required to attest to the accuracy and validity of their companies' financial statements. The law stipulated that criminal charges could result from accounting improprieties. The passage of this legislation ushered in an era in which publicly traded companies began looking to implement systems and technologies that would help them comply with Sarbanes-Oxley (SOX) legislative requirements. This case study recounts the experience designing, developing, and facilitating a train-the-trainer software course for a global pharmaceutical company's Sarbanes-Oxley implementation. The paper will begin with an introduction of the case and a description of the stakeholders' roles. Secondly, the authors reflect upon the case through the framework of Caffarella's (2002) Interactive Model of Program Planning. Finally, the case concludes with details of the training program's delivery and a review of the case's implications on the practice of adult education. The names of the software company, the pharmaceutical company, and the audit firm discussed in this case have been changed to protect the identities of these organizations. Case Description and Stakeholder Roles Goriskco Software operates in the governance, risk and compliance market, with a focus on helping clients meet the compliance obligations of various industries by providing software for deploying online training and surveys, managing completion statistics for online courses, and managing company documentation. Following the passage of Sarbanes-Oxley legislation, Goriskco began marketing its software (Goriskco Enterprise) to customers looking for tools to support Sarbanes-Oxley compliance efforts. PharmaCo is a publicly traded multinational pharmaceutical company based in Europe. Since the company's stock is publicly traded on the New York Stock Exchange, PharmaCo is required to comply with Sarbanes-Oxley regulations. In 2003, Goriskco Enterprise was chosen by PharmaCo as the software tool to help manage PharmaCo's SOX compliance process. The Goriskco software implementation was part of a larger SOX compliance project, which included a comprehensive approach to meeting SOX mandates. The training portion of the project included a two-day train-the-trainer workshop for key PharmaCo finance personnel who would serve as the company's SOX trainers. The project team for the SOX workshop (see Figure 1) was led by a global audit firm, Smith & Company, LLP (SmithCo), which served as the expert on internal controls and SOX legislation. The information in Figure 1 is intended to review the internal and external factors impacting the case study's environment. However, the majority of this case focuses on the internal core of the project, which is comprised of interactions between the project team for the SOX workshop. External factors related to the legislative and regulatory environment are noted in the case, but are not a main focus of this paper, as it was not an aspect of the case which the project team members could control. [FIGURE 1 OMITTED] In the development of the software portion of the workshop, Goriskco personnel worked with a SmithCo training director who was responsible for the compilation and review of all program materials. The SOX workshop was conducted in Europe for 50 PharmaCo finance personnel representing eight countries throughout four continents. …

The choice of ADRs

We study the determinants of a firm’s decision to issue one of the four available ADR programs (Level I, Level II, Level III, and Rule 144A). We find that the firm’s attributes (size, income, asset growth, leverage, privatization, ownership structure, and country-of-origin) and the firm’s home-country institutional variables (accounting rating and legal protection of minority shareholders) condition this choice. We also examine the issuing activity and the determinants of the ADR choice before and after the enactment of the Sarbanes–Oxley (SOX) Act. Following this structural change, we provide evidence of a reallocation between ADR programs. Compared to the pre-SOX period, firms from emerging markets, and those from countries with weak legal protection of minority shareholders, are more likely after SOX to choose Rule 144A and Level III, respectively.

Women and corporate boards of directors: The promise of increased, and substantive, participation in the post Sarbanes-Oxley era

Few aspects of corporate board diversity have generated the focused attention that the participation, position, and promise of women's service on the board has generated, especially in recent years. Of particular note is the extent to which women serve on large firm boards of directors (e.g., Fortune 500 firms). Increases in levels of participation have been described as glacial. While critics decry the level of participation of women on large-scale corporate boards, careful scrutiny suggests substantial progress. Concurrent with steady increases in the overall participation of women on corporate boards are increases in their presence on key board committees. Importantly, women's leadership of key board committees and their service as lead directors has improved in parallel with increases in their board memberships. These increases are particularly noteworthy in the post Sarbanes-Oxley (SOX) period. Such trends suggest the continued progress of women in assuming prominent positions in the corporate governance landscape, and provide evidence that the increasingly challenging environment in the post-SOX era has not attenuated the gains noted in the pre-SOX period.

Audit fee premium and auditor change: the effect of Sarbanes‐Oxley Act

PurposeThe purpose of this paper is to provide more comprehensive analysis of the effects of Sarbanes‐Oxley (SOX) Act on both audit fee premium and auditor change in the US audit market.Design/methodology/approachThe audit fee premium model is employed to track the trend in audit fee premium between 2000 and 2006 for small accelerated filers compared with large accelerated filers and non‐accelerated filers and how the change in auditor affected such trend around the enactment of SOX.FindingsThe results indicate a significant shift in audit fee premium during early years of SOX compliance especially for small accelerated filers compared with large accelerated filers or non‐accelerated filers. Such shift started to wind down during 2006 after the initial application of SOX requirements. Although clients who switched from big to non‐big auditors have experienced a slower increase in their audit fees, these fee savings are lower for small accelerated filers during 2004 and 2005 with the increasing demand for audit services in the US audit industry during these years.Practical implicationsThe compliance costs of significant regulatory changes like SOX may be upfront loaded but their benefits are long‐term benefits in terms of higher quality of financial reporting and better internal controls over financial reporting. When analyzing the effects of such regulatory changes, practitioners and researchers should factor these costs and benefits over a sufficient time horizon.Originality/valueMore comprehensive analysis of SOX effects on the US audit industry not only in the short run during early compliance years, but also in the longer run after the initial setup process.

Excel Competency for the Professional Accountant: Advanced Applications, Controls, and Audit Add-ins

Personal experience indicates that many accounting students do not understand Excel sufficiently well to master spreadsheet controls required for Sarbanes-Oxley (SOX) compliance or International Financial Reporting Standards (IFRS) adoption. Students are typically exposed to Excel at various levels of intensity in high school and college, but the exposure is inadequate in the breadth and depth necessary for compliance within the regulatory requirements and professional accounting standards. Some authors are forecasting extensive use of spreadsheets or manual processes to reconcile dual reporting of traditional U.S. Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) (Difazio and Gannon 2010; Steele 2010). Moreover, error rates of over 90% have been documented in accounting applications using Excel before SOX compliance (Panko 2008). Given this environment, we argue that an Accounting Information Systems (AIS) curriculum can be enhanced by first teaching the functional competency in Excel to students and then integrating such Excel knowledge within the typical AIS coursework that includes The Committee of Sponsoring Organizations (COSO) standards, SOX, Control Objectives for Information and related Technology (COBiT), computer assisted audit tools (CAATs), and eXtensible Markup Language (XML). Our adoption of this approach resulted in increased student competency, better teaching evaluations, and more desirable accounting graduates.

Designing data governance

Introduction Organizations are becoming increasingly serious about the notion of "data as an asset" as they face increasing pressure for reporting a "single version of the truth." In a 2006 survey of 359 North American organizations that had deployed business intelligence and analytic systems, a program for the governance of data was reported to be one of the five success "practices" for deriving business value from data assets. In light of the opportunities to leverage data assets as well ensure legislative compliance to mandates such as the Sarbanes-Oxley (SOX) Act and Basel II, data governance has also recently been given significant prominence in practitioners' conferences, such as TDWI (The Data Warehousing Institute) World Conference and DAMA (Data Management Association) International Symposium. The objective of this article is to provide an overall framework for data governance that can be used by researchers to focus on important data governance issues, and by practitioners to develop an effective data governance approach, strategy and design. Designing data governance requires stepping back from day-to-day decision making and focusing on identifying the fundamental decisions that need to be made and who should be making them. Based on Weill and Ross, we also differentiate between governance and management as follows: • Governance refers to what decisions must be made to ensure effective management and use of IT ( decision domains ) and who makes the decisions ( locus of accountability for decision-making ). • Management involves making and implementing decisions. For example, governance includes establishing who in the organization holds decision rights for determining standards for data quality. Management involves determining the actual metrics employed for data quality. Here, we focus on the former. Corporate governance has been defined as a set of relationships between a company's management, its board, its shareholders and other stakeholders that provide a structure for determining organizational objectives and monitoring performance, thereby ensuring that corporate objectives are attained. Considering the synergy between macroeconomic and structural policies, corporate governance is a key element in not only improving economic efficiency and growth, but also enhancing corporate confidence. A framework for linking corporate and IT governance (see Figure 1) has been proposed by Weill and Ross. Unlike these authors, however, we differentiate between IT assets and information assets: IT assets refers to technologies (computers, communication and databases) that help support the automation of well-defined tasks, while information assets (or data) are defined as facts having value or potential value that are documented. Note that in the context of this article, we do not differentiate between data and information. Next, we use the Weill and Ross framework for IT governance as a starting point for our own framework for data governance. We then propose a set of five data decision domains, why they are important, and guidelines for what governance is needed for each decision domain. By operationalizing the locus of accountability of decision making (the "who") for each decision domain, we create a data governance matrix, which can be used by practitioners to design their data governance. The insights presented here have been informed by field research, and address an area that is of growing interest to the information systems (IS) research and practice community.

Effects of Earnings Forecasts and Heightened Professional Skepticism on the Outcomes of Client-Auditor Negotiation

Ethics has been identified as an important factor that can affect auditors’ professional skepticism For example, prior research finds that auditors who are more concerned with professional ethics exhibit greater professional skepticism. Further, the literature suggests that professional skepticism may lead the auditor to more vigilantly resist the client’s position in financial reporting disputes. These reporting disputes are generally resolved through negotiations between the auditor and client to arrive at the final reported amounts. To date, the role that professional skepticism potentially plays in the negotiation process has been relatively unexplored. The literature prior to the enactment of Sarbanes-Oxley (SOX) suggests that auditors are more likely to approve a client position when the matter in dispute is relatively ambiguous and when changing the client’s position will result in the client failing to meet analysts’ expectations. However, changes resulting from SOX have led auditors to be more vigilant and therefore results found in the pre-SOX environment may not hold in the current environment where auditors are held more accountable for their actions. Results from an experiment with experienced audit managers and partners suggest that in the post-SOX climate, auditors’ negotiations do not appear to be substantively influenced by management being able to meet or beat forecasts. Moreover, we find that when auditors exhibit heightened professional skepticism, they are more ethical by being conservative and they stand more resolute than when auditors do not exhibit heightened professional skepticism. Finally, although we do not find a main effect for the influence of earnings forecast we do find a significant interaction between earnings forecast and heightened professional skepticism. Implications for practice and research are then presented.

The Sarbanes‐Oxley Act of 2002: what impact has it had on small business firms?

PurposeThe purpose of this paper is to explore the impact of the Sarbanes‐Oxley (SOX) Act of 2002 on small corporations when compared to large firms and to investigate differences perceived by small and large firms with respect to costs and internal controls.Design/methodology/approachA questionnaire containing 20 questions (five demographic and 15 addressing issues related to SOX implementation) was mailed to 5,479 board members, chief executive officers (CEOs) and chief financial officers (CFOs) of 676 separate firms with 117 completed surveys returned.FindingsThe results of the study show significant differences in the responses between small and large firms concerning: the overall impact of SOX on the firm; the amount of time dedicated to SOX; the role of the external auditor; the firm's implementation stage; the most significant challenges due to SOX implementation; the corporate governance reforms instituted; and changes in board compensation.Research limitations/implicationsThe basic limitation of this paper is the low‐response rate (slightly more than 2 per cent) which is not surprising since CEOs, CFOs, and board of directors have a low tendency to respond to surveys.Originality/valueThe findings of this paper suggest that: recent actions taken by the Securities and Exchange Commission (SEC) are appropriate in providing much needed relief for smaller public firms; and lend support for further actions of assistance by the SEC. This paper is of value to academicians, practitioners and to an international audience engaged in the harmonization of accounting standards.

The Sarbanes-Oxley Act of 2002 (SOX): A redundant regulation for the banking industry

The aim of the paper is to show that, for banking institutions, Sarbanes-Oxley (SOX) regulation is redundant, and imposes additional unnecessary compliance costs. The banking industry in the United States is heavily regulated. Each of the regulations that banks must follow was developed in isolation by various governing bodies, causing many regulatory provisions to be redundant, overlapping or contradictory. In the wake of the Enron and WorldCom scandals, the Sarbanes-Oxley Act of 2002 was the Securities and Exchange Commission's answer to restoring investor confidence. However, the enactment of SOX was done hastily, and its effects on industries like the banking sector were largely ignored. SOX overlaps with previously enacted banking regulations such as the Federal Deposit Insurance Corporation Improvement Act, Bank Secrecy Act (BSA)/Anti-Money Laundering Directive (AML) and Basel II, among others. The redundant nature of SOX is costing banking institutions large sums of time and money. It is essential that banks strive to achieve a single compliance framework that can manage all of the regulations to which the bank is subject in order to mitigate the costs of redundancy.

The impact of Sarbanes‐Oxley on internal control remediation

PurposeThe purpose of this paper is to examine the determinants of internal control weakness remediation revealed under Sarbanes‐Oxley (SOX) section 404 reporting requirements.Design/methodology/approachData on firms that reported internal control weaknesses for fiscal year 2004 are collected, and determined whether these weaknesses still existed in their 2005 filings. Logistic regression is used to examine the impact of corporate governance, resource, impediments (e.g. severity of weakness), and Big 4 auditor status on remediation completion.FindingsResources (e.g. size, ROA) were positively associated with remediation. Use of Big 4 auditor, more audit committee meetings, more business segments, and filing lag were negatively associated with remediation, as were number and type of internal control weaknesses.Research limitations/implicationsFirst, the paper sheds light on the individual firm factors that influence corporate response to the legal and social (e.g. public pressure) environment facing firms. Understanding this should better enable policy makers and regulators to foresee where potential lags in firm implementation of regulations may occur, and why. Second, it believes that the paper also sheds light on the relative value of different corporate governance structures in meeting investor concerns for proper stewardship of their investments. Finally, this paper provides information of use to other corporate governance researchers in that the results suggest the overwhelming importance of the legal and social environment in influencing corporate behavior. However, this paper does not address the contribution of national culture, financial and audit‐related reporting requirements, and differences in firm resources, to corporate behavior.Originality/valueThe paper deepens the field's understanding of the determinants of internal control weakness remediation, furthering regulators' understanding of SOX's impact.

Compliance with Sarbanes‐Oxley and do not call regulations is interdependent when telemarketing is a core part of a sales strategy

PurposeThis paper aims to explain the importance of a do not call (DNC) regulations compliance program for broker‐dealers and other investment companies as part of an overall Sarbanes‐Oxley (SOX) compliance strategy.Design/methodology/approachThe paper explains why an effective DNC Regulations compliance program is needed, the consequences of violations, and the control objectives an effective DNC solution should address.FindingsA DNC solution needs to address the risks of a lack of necessary functionality, circumvention, security, failure, and insufficient monitoring. In 2004, the SEC approved amendments to Rule G‐39 that require broker‐dealers to comply with the Federal Trade Commissions DNC rules. In conjunction, the Municipal Securities Rulemaking Board also issued clear guidance on required DNC compliance. Thus, this topic is of key importance to broker‐dealers and other investment professionals, especially publicly traded firms. In light of current events, control structures within investment firms will become increasingly important even in non‐public companies, and SOX‐like regulations are likely to develop, affecting all types of investment companies. Proactive compliance is essential.Practical implicationsThe risk of DNC violations is not insignificant. Failure to comply with the do not call (DNC) rules could also lead to failure to comply with SOX since penalties and fines for violations could easily be overlooked and be material to a company's financial information.Originality/valueThe paper offers detailed explanation of DNC program requirements by an experienced consultant.

Regulation and Sarbanes‐Oxley

Many of the papers in this special issue are concerned with regulation and some with Sarbanes-Oxley (SOX). In this commentary I will begin by summarizing the arguments for regulation that have been made in the literature.1 I will then consider whether these arguments apply to SOX. I will suggest that, rather than being based on sound principles, regulation often seems to be a consequence of the public’s need for action in response to a crisis, and that this was the case with SOX .I will argue that the recent financial meltdown provides another example of the same phenomenon.

SOX, Corporate Transparency, and the Cost of Debt

We investigate the impact of the Sarbanes-Oxley (SOX) Act on the cost of debt through its effect on the reliability of financial reporting. Using Credit Default Swap (CDS) spreads and a structural CDS pricing model, we calibrate a firm-level corporate opacity parameter in the pre- and post-SOX periods. Our analysis shows that corporate opacity and the cost of debt decrease significantly after SOX. The median firm in our sample experiences an 18 bp reduction on its five-year CDS spread as a result of lower opacity following SOX, amounting to total annual savings of $ 844 million for the 252 firms in our sample. Furthermore, the reduction in opacity tends to be larger for firms that in the pre-SOX period have lower accrual quality, less conservative earnings, lower number of independent directors, lower S&P Transparency and Disclosure ratings, and are more likely to benefit from SOX-compliance according to Chhaochharia and Grinstein’s (2007) criteria.

Changes in Market Responses to Financial Statement Restatement Announcements in the Sarbanes-Oxley Era

We examine changes in the market's response to financial statement restatement announcements during the Sarbanes-Oxley (SOX) era. We define this era as beginning with the U.S. Department of Justice initiation of a criminal investigation into the collapse of Enron, and its attendant loss of billions of dollars of shareholder value, through the November 15, 2004, requirement that all U.S. companies with market capitalizations over $75 million must comply with SOX Section 404, which deals with corporate internal controls over financial reporting We divided the Sarbanes-Oxley era into pre- and post-SOX periods, with the dividing line concurrent with the signing of the Sarbanes-Oxley Act into law on July 30, 2002. The comparison of pre- and post-SOX periods shows that post-SOX, the negative impact on companies announcing restatements is reduced 71 percent on average (as measured by the cumulative abnormal return on days 0 and 1) and the positive market response to announced restatements is reduced by 33 percent. This translates into a net reduction in lost market value of $207 million per restatement announcement or $74.4 billion in total market value for the two-day announcement event window. We also find that this reduction is not due to the diluting effects of the increased number of statistically insignificant post-SOX market reactions to restatement announcements. Finally, our results indicate that after SOX became law, post-announcement abnormal returns exhibit statistically significant lower volatility and the trend in statistically insignificant market responses to restatement announcements no longer declines, thus indicating less uncertainty on the part of investors regarding the announcements of restating companies, and perhaps because investors believe the disclosed information conveyed by the restated financials is timelier and of higher quality.

Merging financial and managerial accounting: Strategic cost management and enterprise risk assessment under SOX

AbstractThe spate of accounting and financial reporting scandals in recent years has challenged businesses, auditors, directors, and accounting regulators to take a much broader perspective in evaluating and reporting on risk. The Sarbanes‐Oxley (SOX) legislation in the United States was an attempt to address the problems by requiring enterprises to assess their risks. This article examines the eventful life of an entrepreneurial, publicly traded U.S. telecom venture, including its efforts to support the “strategic enterprise” perspective. It points out the dangers when this perspective is ignored. © 2009 Wiley Periodicals, Inc.

Anatomy of a Data Breach

ABSTRACT In the wake of undiscovered data breaches and subsequent public exposure, regulatory compliance and security audit standards are becoming more important to protecting critical assets. Despite the increase in the number of data breaches via illicit means, internal controls seem to fail when it comes to the assurance that critical assets remain uncompromised. According to the Identity Theft Resource Center, 336 breaches have been reported in 2008 alone, 69% greater than this time last year1. This is a concern for security teams, especially since a lack of dedicated resources exists to combat and revert this trend. This is significantly important to take into consideration when going through the formal audit process to certify adherence to Sarbanes-Oxley (SOX), Graham Leach Bliley (GLBA), Payment Card Industry (PCI), or the Health Insurance and Portability and Accountability Act (HIPAA). With the significant increase in data exposure corporations cannot afford to take shortcuts when it comes to information assurance. Otherwise it is almost certain that one will become a victim of a serious exposure of sensitive information. This paper will explore the several disconnects between established and accepted security audit framework and the variable of hidden infections.

Using Malmquist Indexes to measure changes in the productivity and efficiency of US accounting firms before and after the Sarbanes–Oxley Act

There have been many criticisms of the Sarbanes–Oxley (SOX) Act passed in July of 2002 to correct business accountability and performance practices. The act has a major emphasis on accounting and its practices. This paper attempts a response to these criticisms by investigating changes in productive efficiency for 62 of the largest US public accounting firms between the periods (2000–2001) and (2003–2004)—the periods before and after enactment of SOX in July of 2002. DEA is used to calculate Malmquist indexes of productivity and efficiency changes. This index is used because it can distinguish between changes in technical efficiency, which limit the possibilities, and changes in the performance efficiencies for each firm. Contrary to many of the criticisms, results indicate that accounting firms have exhibited significant post SOX growth in productive efficiency which is better than pre-SOX performances.

Computer Security Breaches A Threat To Credit Sales

Business security has progressed from the wooden cash box to the cash register and now the nightmare of the computer. Control has progressively slipped from the control of the instrument operator to a little understood collection of networked instruments. This evolution of difficulty has created numerous protection problems for the business operator. Not only does the cash and other payment means need collection and protection, but now the payment instrument itself has fallen under the responsibility of the vendor. Business owners are as much at risk from cyber security as from physical security. Thieves don’t have to rush the store with guns blazing to steal money in fact they don’t have to steal money from the store at all. Information and data are the sources of new gold. The information collected from customers’ credit cards contains enough data to secure riches for any enterprising evil doer. In addition to normal data growth, regulatory compliance (Sarbanes/Oxley (SOX), SEC17a, HIPAA, Patriot Act, Freedom of Information etc.) is contributing exponentially to data growth, as more records are generated; more regulations are created in more industries. This creates a big fat target as much a target as any “old west” bank, and businesses are responsible for the protection and security of customers’ data.

Continuous online auditing as a response to the Sarbanes‐Oxley Act

PurposeThe purpose of this paper is to examine investors' perceptions of the usefulness of continuous online auditing (COA) prior to and after the Sarbanes‐Oxley (SOX) Act and assesses the current value relevance of continuous auditing. The paper examines two research questions: first, whether continuous online audits significantly impact investors' perceptions of firm risk and, consequently, the value of a firm and second, whether continuous online audits have a greater impact on investor assessment of a firm's risk subsequent to SOX.Design/methodology/approachA 2 × 2×2 × 2 between participants laboratory experiment was conducted. Technology risk was manipulated at (e‐commerce risks versus no e‐commerce risks), traditional financial risk was manipulated at (high financial leverage versus low financial leverage), COA was manipulated at (traditional annual audit versus continuous online audits), and pre‐ and post‐SOX was tested (2002 sample versus 2005 sample). The primary dependent variables used were investors' assessment of firm risk and investors' assessment of earnings per share estimates. Additionally, investors' confidence in their investing decision was captured.FindingsResults indicate a demand for COA as reflected in investors' reduced firm risk estimates, and increased confidence in estimates. Comparative results from the 2005 sample and the 2002 sample indicate that the value relevance of COA has increased after the introduction of SOX in July 2002. We attribute this shift to investors' perception that COA is a factor that helps mitigate firm risk and relatedly boosts investor confidence in their investing decisions.Research limitations/implicationsOnly a single proxy for traditional business risk (financial leverage) is examined. Future studies need to examine the ability of continuous online audits to mitigate other types of traditional business risks.Originality/valueThe study establishes the current economic feasibility of continuous online audits. Additionally, the most insightful finding of the study is that the value relevance of COA has increased after the introduction of SOX. This shift is due to investors' perceptions of COA as a factor that mitigates firm risk and helps boost confidence in their investing decisions. Implications for the profession, the classroom and public policy are discussed.