Highlights noted in a related press release issued by Treasury:
- Financial restatements grew nearly eighteen-fold from 90 in 1997 to 1,577 in 2006 with acceleration in restatement activity occurring in 2001 before the implementation of the Sarbanes-Oxley Act
- Restatements associated with fraud and revenue declined after 2001. Fraud was a factor in 29 percent of all 1997 restatements, but only 2 percent of 2006 restatements. The proportion of revenue-related restatements also decreased from 41percent in 1997 to 11 percent in 2006
- Market reactions to the restatements dampened over the decade study period, while the number of restatements grew. Market reaction to financial restatements tended to be more negative when the restatement involved fraud or revenue errors.
- Restating companies are typically unprofitable even before the restatement. In the year prior to announcing a restatement, more than half of restating companies reported a net loss.
Treasury’s press release adds: “Treasury did not ask the study’s author to develop policy recommendations. The study was intended to inform federal regulators and advisory committees, such as the SEC’s Advisory Committee on Improvements to Financial Reporting.
The goal was to take a clear look at figures often used when discussing U.S. companies’ competitiveness and investor confidence in financial reporting.”
We plan to provide further highlights and commentary on the Treasury study later this week.
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