Treasury Briefing Today on Restatements Study

The U.S. Treasury Department announced yesterday that it will hold a briefing for the press at 11:30 a.m. EDT today (April 9) on the restatements study it commissioned as part of its capital markets initiative.

As announced last fall, the study is being conducted by Prof. Susan Scholz of the University of Kansas. As noted in that announcement:

"Numerous studies have pointed to a significant increase in the number of financial restatements during the past few years. Many reports attribute the growing number of restatements to increased management and auditor focus on accurate financial reporting due to the mandates in the Sarbanes-Oxley Act and greater financial reporting review and enforcement by financial regulators.

"However some studies suggest that while some financial restatements are clearly material, immaterial financial restatements might pose significant and unwarranted challenges to the capital markets. Immaterial restatements might unnecessarily harm investor confidence by calling into question the credibility of company management, auditors, and the financial reporting system as a whole.

"Professor Scholz will examine the factors triggering public company financial restatements, describe public company financial restatements, analyze the impact of public company financial restatements upon investors and the capital markets, and evaluate the significance of public company financial restatements. The study will focus on restatements from 1997-2006. Treasury intends to make the study's results public by early 2008."

Treasury did not specify in yesterday's announcement if the study will actually be released today, presumably it is close to being released. Actually, a close reading of last fall's announcement (highlighted above) indicates just that the "study's results" will be made public, not necessarily that the full study will be released to the public, so we will see.

Of note in yesterday's announcement was the title of the Treasury study was given as: "The Changing Nature and Consequences of Public Company Financial Restatements."

Although this is a new study, the title if nothing else has parallels to some prior studies Prof. Scholz has published, some of which were coauthored with then-USC professor (and now, SEC Deputy Chief Accountant) Zoe Vonna Palmrose. One such study cited in the working bibliography of Treasury's Advisory Committee on the Auditing Profession (ACAP) is entitled: "The Circumstances and Legal Consequences of Non-GAAP Reporting: Evidence From Restatements," by Palmrose and Scholz, published in 2004.

Not only is Treasury ACAP (and Treasury in general) interested in the study's results; the SEC Advisory Committee on Improving Financial Reporting (CiFIR) is also following this issue, and a number of the recommendations in its progress report (released by the SEC for public comment, on which comments were due March 31) are aimed directly and indirectly at reducing unnecessary restatements and providing more transparency around restatements.

We will provide an update on Treasury's restatements study in a blog post later today or tomorrow, including a link to the study if it is released.

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