Effects of Sarbanes-Oxley Act 2002 on the Quality of Corporate Reporting by UK Listed Companies

The Sarbanes-Oxley Act 2002 (SOA) was passed in the US in direct response to the spectacular collapse of Enron and subsequently Arthur Andersen, one of the then Big 5 Audit firms in the USA. We utilized institutional theory to study the extent to which UK financial reporting practices have changed by the passage of this Act by examining the corporate governance sections of selected financial reports. We examined the financial reports of 5 UK companies listed in the US and 5 UK only listed against the corporate governance introductions, internal control disclosures, audit committee disclosures, and external auditors reports in the pre and post-SOA period (2000-2016) and found that whereas the UK SOA compliant companies made all the necessary adjustments to comply with the Act, the UK only listed companies also began making similar changes in their disclosures when there was no such requirement in the UK. We have observed that the standard and quantity of information provided by UK companies listed in the US in corporate disclosures have improved during the SOA period when compared to the pre-SOA period. Likewise, we have noticed a similar trend in the corporate disclosures of UK-only listed companies in the post-SOA period compared to the period preceding it. Overall, we conclude that there has been a substantial decrease in the use of generic language and boiler plateism in both sets of our sample companies' corporate and audit reports during the post-SOA period. Based on these findings, we suggest that the SOA has had a favourable impact on corporate reporting in the UK. Our research adds to the ongoing modifications to the UK Corporate Governance framework, where the Financial Reporting Council is presently adopting a UK SOx-style corporate governance system in the UK, replacing FRC with ARGA, similar to the PCAOB.