Our study examines whether the certification requirements under Section 302 of the Sarbanes‐Oxley Act of 2002 affect financial reporting decisions. Using 74 part‐time MBA students as a proxy for corporate managers, we find that the participants' level of moral reasoning and their assessed influence of the Sarbanes‐Oxley Act were significantly positively associated with the amount of loss recognized through their financial statement adjustment decisions. Consistent with expectations, there was also a significant interaction whereby the influence of the Sarbanes‐Oxley Act was significantly positively associated with the adjustment decision for those participants at lower levels of moral reasoning, but not with the adjustment decision for those participants at higher levels. Thus, the findings from our study suggest that the Sarbanes‐Oxley Act may be an effective deterrent for an overstatement of financial statement income by individuals at lower levels of moral reasoning. These results should be of considerable interest to regulators as they attempt to assess the effects of the Sarbanes‐Oxley Act.
