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Is SOX Starting to Work?

For the first time in a decade, according to a Glass Lewis & Co. report, there has been a year-over-year decline in the number of restatements filed by public companies.

By Staff Writer | Updated on February 01, 2008

Following three-plus years of painful adjustments brought about by Sarbanes-Oxley, companies may be finally getting a handle on how to use SOX to their advantage. For the first time in a decade, according to a Glass Lewis & Co. report, there has been a year-over-year decline in the number of restatements filed by public companies. During 2007, companies filed 1,289 financial restatements, down 15% from 2006, when restatements peaked at 1,524. Among companies with at least $75 million in market capitalization, restatements were down 5% to 560.

Restatements spiked in the early years of SOX, partly because SOX forced companies and auditors to re-evaluate accounting policies. “The re-evaluation of risk that occurred during that time necessarily resulted in [more] restatements,” says PCAOB board member Charles Niemeier. “Internal controls played a part in that, as a vehicle for risk re-evaluation. As material weaknesses decrease and companies complete SOX 404 implementations, it should lead to fewer restatements.”

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