Sarbanes-Oxley Act as a Credential for Reducing Internal Control Failures and Gaps for Creative Accounting

Although the potential benefits of the Sarbanes-Oxley Act (SOX) are reported in the leading literature, little is known about the Sarbanes-Oxley Act (SOX) and the reduction of internal control failures and creative accounting in organizations. This study examines the impacts of the Sarbanes-Oxley Act (SOX) in reducing internal control failures and creative accounting gaps in multinational companies in an emerging economy, in this case Brazil. To enable the development and application of the research, a survey of specialized literature was necessary to improve knowledge about SOX. Primary data were collected from specialists from multinational companies from different sectors in the Southeast region of Brazil. The interview questionnaire examined the level of compliance with SOX and how important the expert/auditor considers each section of SOX to reduce creative accounting. The results suggest that SOX reduces internal control failures and gaps for corporations’ creative accounting practices. This research is original, fills a gap in the literature, and brings substantive contributions: (a) sheds light on company managers and stakeholders; (b) highlights the prominence of SOX as a prominent instrument to reduce failures of internal controls and creative accounting practices in companies; (ii) unexpectedly, in this research, the independent audit showed little relevant compliance and influence; and (c) advances arguments from the literature. In addition to providing greater security to stakeholders regarding their investments, SOX has been gaining prominence as environmental, social, and governance (ESG) issues occupy spaces on corporate strategy agendas.