October 2003

Survey Shows Restatements Continuing to Rise

The past year has seen a continuing increase in the number of public companies restating their earnings because of accounting errors. During the 12 months ending June 30, 2003, 354 public companies filed restatements, an increase of more than 30% over the previous 12-month period. Problems applying accounting rules, human and system errors, and fraudulent behavior are the three primary causes for accounting errors, according to the Huron Consulting Group.

The number of restatements has continued to rise each calendar year, from 216 in 1999, to 330 in 2002 (see Exhibit). This trend has continued even though the number of registered companies has fallen, from over 10,500 in 1999 to around 9,000 in 2002. The number of restatements filed during the third and fourth quarters of 2002 was the most recorded during the past five years. The data were compiled from a report titled “Rebuilding Investor Confidence, Protecting U.S. Capital Markets, The Sarbanes-Oxley Act: The First Year,” released by the House Committee on Financial Services.

In the 12 months ending June 30, 2003, 22% of the restatements were filed by companies with greater than $1 billion in revenue, and 44% were filed by companies with under $100 million in revenue. Improper revenue recognition was the leading cause of restatement during this period. Huron tracks restatements based on filing date, not announcement date. Some companies announce a restatement but do not file amended financials due to bankruptcy or delisting. (More information is available at www.huroncosultinggroup.com).

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