Correspondence: Dan Palmon, Rutgers Business School, Rutgers University, 180 University Avenue, Newark, NJ 07102, USA. Tel: +1 973 353 5472; Fax: +1 201 586 0218; E-mail: dan@palmon.com

¹is a professor of accounting at the School of Management, New Jersey Institute of Technology. He is a British-qualified Chartered Management Accountant. He has a Master's degree in Business Administration and a Master's degree in Philosophy from Cranfield University in the UK. He obtained a PhD in accounting from Drexel University, Philadelphia. His research interests are in the area of earnings management and developing models to detect earnings overstatement fraud by corporations.

²earned his PhD in Management from Rutgers University. He has co-authored articles in the international accounting arena, pensions, tax forecasting, audit group decision-making, accounting education and auditor independence. Dr Kleinman co-authored a very well-received book entitled Understanding Auditor-Client Relationships: A Multi-faceted Analysis in 2001 (Markus Weiner Publications, Inc.). He is currently a full professor at the Touro Graduate School of Business, located in New York City, NY.

³received his PhD from New York University. He is the Chair of the Accounting, Business Ethics, and Information Systems Department at the Rutgers Business School. His publications appear in The Accounting Review, Journal of Accounting Research, the Journal of Business, the Journal of Banking and Finance and in other leading journals. Dr Palmon has served as a Director and Chair of the Audit Committee for several corporations.

Received 25 January 2008; Revised 25 January 2008; Published online 28 February 2008.

EXECUTIVE SUMMARY

Following a wave of accounting scandals, the Sarbanes–Oxley Act (SOX) was enacted on 30th July, 2002. The objective of the Act was to provide investors with better protection by establishing a new oversight board, improving corporate governance and internal controls, enhancing financial disclosure, and strengthening auditor independence.In this paper, we question the extent to which SOX actually improved auditor independence. We seek to shed some light on auditor independence-related issues by asking: What has the academy learned about SOX's impact on auditor independence in the five years since its enactment? Have researchers even examined key ramifications of SOX's requirements? If not, what areas need scrutiny? These are the issues considered here. In essence, we examine whether there is a gap between what regulators want to see addressed and what researchers have actually looked at with regard to auditor independence in the post-Sarbanes–Oxley period. The Securities and Exchange Commission (SEC) requirement to enhance auditor independence has been far reaching. It involves providing guidelines on matters relating to the provision of nonaudit services, partner rotation, audit engagement teams, auditor compensation and the role of the audit committees. Therefore, we expected to find a large number of academic research papers on this topic. Surprisingly, the number of such papers is very small, with the results inconclusive. Overall, the academy falls short of providing detailed guidance to the SEC and other regulators on the effectiveness of their guidelines in enhancing auditors' independence. We hope that, after reading our paper, regulators and academicians will agree with us that much more research is needed before assessing the impact of SOX. A recent FEI survey shows that 78 per cent of financial executives agree that the cost of implementing SOX exceed its benefits. We hope financial executives, whether they hold this view or not, may also find an interest in reading our paper.Given strong trends toward globalisation of business and the concomitant easing of cross-border stock exchange listing requirements, we also suggest to regulators that insights into the structure of US auditing may be gleaned by examining apparently successful auditing innovations overseas.