Financial Restatements Continue to Decline

A recent report by Audit Analytics noted that the number of financial restatements among U.S. public companies has declined for the third year in a row.  630 companies filed 674 restatements last year representing a 27% decline from 2008.  Here is what CFO magazine had to say about the report.

The report attributes the decline in restatements to two factors: improved internal controls as a result of Sarbox, and a 2008 recommendation by the SEC's Advisory Committee on Improvements to Financial Reporting that the agency relax its requirements on what types of errors should trigger restatements.

"Frankly, I was pleasantly surprised," says Dennis Beresford, an accounting professor at the University of Georgia's J.M. Tull School of Business and a member of the CIFR. "It's always hard to know exactly what the reasons were, but I'd like to think it was a combination of better financial reporting, better auditing, and hopefully a little more reasonableness in terms of applying materiality [as to what needs to be restated]."

Interestingly, the majority of restatements continue to come from the smaller, non-accelerated filers that are not subject to an external audit of their financial controls (see chart below).  The decision to exempt these companies permanently from an external audit is still being debated by members of Congress and the Obama Administration.