Financial restatements up; misstated revenues most often the cause

The number of companies restating financials with the Securities and Exchange Commission (SEC) is increasing, according to a recent report by Huron Consulting Group, a national business and financial consulting practice. The U.S. House of Representatives Committee on Financial Services, which also monitors this trend, reports that the total number of financial restatements since 1999 has jumped 53 percent.

"Sarbanes-Oxley and recent catastrophic restatements have resulted in major changes in our financial reporting world," says Joseph J. Floyd, chief operating officer, Huron financial and economic consulting practice. In the January-to-June 2003 period, 158 public companies restated earnings because of accounting errors.

In the 12-month period ending June 30, 2003, 353 companies filed restatements, according to Huron. Of these, 22 percent were filed by companies with revenues greater than $1 billion. Twice as many filings were from companies under $100 million.

During this period, the leading cause for restatements was improper statement of revenues. Other reasons cited by the Huron study were improper estimation, complex business arrangements outpacing accounting rules, lack of oversight and controls, poor earnings management, and collusion by employees.