Consulting Group Analyzes Cause of Financial Restatements

What was really behind all of the financial restatements last year? What kinds of trends can be seen in the causes of these financial restatements? The answers to these and other questions regarding public company financials can be gleaned from Chicago-based Huron Consulting Group's Analysis of Restatement Matters: Rules, Errors, Ethics, For the Five Years Ended December 31, 2002.

The purpose of the analysis was to identify the common attributes of the financial restatements of public companies including industry commonalities, company size, and the underlying cause of the restatement.

The study uncovered some key points, including:

  • Accounting restatements in public companies were up 22% in 2002 over 2001.

  • The primary causes of these restatements were problems applying accounting rules, human and system errors, and fraudulent behavior.

  • Industries that dominate the restatement phenomenon include manufacturing, software, finance, insurance and real estate industries.

  • Revenue recognition is the leading cause of restatements among most industries.

  • Restatements per 1000 public registrants have risen from 21 per thousand in 1999 to 36 per thousand in 2002.

  • Larger companies (over $1 billion in sales) saw the largest percentage increase in restatements from 2001 to 2002.

The study also points to two significant developments in 2002 that acted as a catalyst for financial restatements - the passage of the Sarbanes-Oxley Act and the demise of Arthur Andersen.

The Executive Summary of the study is available for free from the Huron Consulting Group's Web site.

You may like these other stories...

By Jason Bramwell The board of trustees of the Financial Accounting Foundation (FAF) finalized a new policy on November 19 that provides the Governmental Accounting Standards Board (GASB) with direction on what...
By Jason Bramwell The Governmental Accounting Standards Board (GASB) is now offering a free online toolkit designed to assist preparers and auditors of state and local government pension plans with implementing new...
By Steven Brenner With the news that the Financial Accounting Standards Board (FASB) – in conjunction with the International Accounting Standards Board (IASB) – intends to formally move...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.