IDEAS home Printed from
   My bibliography  Save this article

Was Dodd-Frank justified in granting internal control audit exemption to small firms?


  • R. Mithu Dey
  • Mary W. Sullivan


Purpose - The purpose of this paper is to estimate the cost of the internal control audit for small firms and assess whether the costs are scalable or, alternatively, whether they are higher in relation to firm size for small firms than for larger firms. Design/methodology/approach - The method estimates the Section 404 audit fee premium for companies that became accelerated filers for the first time in 2006 and 2007. The authors use the estimated audit fee premium as a proxy for the premium that non-accelerated filers would have to pay if they were required to obtain an internal control audit. Findings - The main finding shows that the Section 404(b) estimated cost of the internal control audit divided by assets are significantly higher for non-accelerated filers and first-time filers than for those of larger firms. Research limitations/implications - One limitation of the study is that, while it shows that the costs of the Section 404 audit are not scalable to firm size, it does not prove that the costs of the audit exceed the benefits for non-accelerated filers. Practical implications - The finding that the costs are proportionately higher for small firms provides some evidence supporting the decision to permanently exempt non-accelerated filers from Section 404(b). Originality/value - The results show that smaller firms pay proportionately more for the Section 404 internal control audit than larger firms. This suggests that the revised AS no. 5 did not succeed in making the internal control audit completely scalable to firm size.

Suggested Citation

  • R. Mithu Dey & Mary W. Sullivan, 2012. "Was Dodd-Frank justified in granting internal control audit exemption to small firms?," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(7), pages 666-692, July.
  • Handle: RePEc:eme:majpps:v:27:y:2012:i:7:p:666-692

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    2. Scott Whisenant & Srinivasan Sankaraguruswamy & K. Raghunandan, 2003. "Evidence on the Joint Determination of Audit and Non-Audit Fees," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 721-744, September.
    3. Craswell, Allen T. & Francis, Jere R. & Taylor, Stephen L., 1995. "Auditor brand name reputations and industry specializations," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 297-322, December.
    4. Kim, Yongtae & Park, Myung Seok, 2009. "Market uncertainty and disclosure of internal control deficiencies under the Sarbanes-Oxley Act," Journal of Accounting and Public Policy, Elsevier, vol. 28(5), pages 419-445, September.
    5. Zhang, Ivy Xiying, 2007. "Economic consequences of the Sarbanes-Oxley Act of 2002," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 74-115, September.
    6. Li, Xianghong & Zhao, Xinlei, 2006. "Propensity score matching and abnormal performance after seasoned equity offerings," Journal of Empirical Finance, Elsevier, vol. 13(3), pages 351-370, June.
    7. Pashigian, B Peter, 1984. "The Effect of Environmental Regulation on Optimal Plant Size and Factor Shares," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 1-28, April.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Louis Kaplow, 2017. "Optimal Regulation with Exemptions," NBER Working Papers 23887, National Bureau of Economic Research, Inc.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:majpps:v:27:y:2012:i:7:p:666-692. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.