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Wasn't Sarbanes-Oxley supposed to cut down on financial restatements? Well, according to the Government Accounting Office, things have rarely been so bad. Between July 2002--when ...

By Robert Rosenberg | Updated on September 01, 2006

Wasn’t Sarbanes-Oxley supposed to cut down on financial restatements? Well, according to the Government Accounting Office, things have rarely been so bad. Between July 2002–when SarbOx was signed into law–and September 2005, the number of public companies announcing restatements because of financial reporting fraud or accounting errors soared to 6.8% of the companies listed on the NYSE, NASDAQ and the AMEX, from 3.7%. Compounding the problem, the GAO found that some 21% of companies that announced the intention to restate appear not to have filed the necessary disclosure documents required when companies plan to issue material information outside the normal reporting time. This indicates that the Securities and Exchange Commission may need to take corrective action or clarify guidance regarding disclosure filings.

Beyond the longer-term impact on a company’s reputation among investors from such restatements, the cumulative short-term market effect of the three years worth of restatements amounted to $63 billion, when adjusted for market movements, or $43 billion in absolute terms, in the days immediately following the initial announcement. The drop represents 0.4% of the capitalization of the major exchanges.

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