Financial Restatement Database (31-AUG-06, GAO-06-1053R).
On July 24, 2006, we issued a report to Congress entitled,
Financial Restatements: Update of Public Company Trends, Market
Impacts, and Regulatory Enforcement Activities. That report
included a listing of 1,390 financial restatement announcements
that we identified as having been made because of financial
reporting fraud and/or accounting errors between July 1, 2002,
and September 30, 2005. As part of that work, Congress asked that
we provide a limited update of that database for the period
October 1, 2005, through June 30, 2006.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-1053R
ACCNO: A60029
TITLE: Financial Restatement Database
DATE: 08/31/2006
SUBJECT: Accounting errors
Corporate audits
Corporations
Databases
Financial analysis
Financial statement audits
Financial statements
Fraud
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GAO-06-1053R
* [1]On February 23, 2007, this correspondence was reissued to amend
selected company shares outstanding. Please select this link to
GAO-06-678 for more information.
* [2]Enclosure I
On March 5, 2007, this correspondence was reissued to amend selected
company shares outstanding. Please select this link to GAO-06-678 for more
information.
August 31, 2006
The Honorable Paul S. Sarbanes
Ranking Minority Member
Committee on Banking, Housing, and Urban Affairs
United States Senate
Subject: Financial Restatement Database
Dear Senator Sarbanes:
On July 24, 2006, we issued a report to you entitled, Financial
Restatements: Update of Public Company Trends, Market Impacts, and
Regulatory Enforcement Activities.^1 That report included a listing of
1,390 financial restatement announcements that we identified as having
been made because of financial reporting fraud and/or accounting errors
between July 1, 2002, and September 30, 2005.^2 As part of that work, you
asked that we provide a limited update of that database for the period
October 1, 2005, through June 30, 2006. This updated database, along with
the database included in our July 2006 report, can be viewed at
http://www.gao.gov/cgi-bin/getrpt?GAO-06-1079SP . This correspondence
provides information about restatement announcements since October 2005.
We encourage researchers and the public to consider our objective, scope,
and methodology (enc. I) and engage in their own analyses of the data
contained in our restatements database (enc. II).
Enclosure II provides the name of each company associated with a
restatement announcement, the company's stock (or ticker) symbol, the
primary listing market for the stock at the time of the announcement, and
the date of the announcement. This correspondence does not include any
type of economic analysis of the effect of financial restatement
announcements on companies' stock prices. Moreover, unlike the database
for 1,390 restatement announcements identified in our July 2006 report
(enc. III), which includes the reasons for the restatement and the
restatement prompter, the database for the October 2005 to June 2006
listing does not.
To identify restatement announcements, we used Lexis-Nexis, an online
information service, to systematically search for restatement
announcements using variations of "restate" and other relevant words. We
then identified and collected information on 396 restatements announced by
360 public companies--310 of which were listed companies on the New York
Stock Exchange (NYSE), Nasdaq, and American Stock Exchange (Amex)--from
October 1, 2005, to June 30, 2006, that involved corrections of previously
reported financial results.^3 Our database generally excludes
announcements involving stock splits, changes in accounting principles,
and other announced restatements that were not made to correct errors in
the application of accounting principles.
As agreed with your office, we plan no further distribution of this
correspondence until 30 days from its issuance unless you publicly release
its contents sooner. At that time, we will send copies of this
correspondence to the Chairman of the Senate Committee on Banking,
Housing, and Urban Affairs; the Chairman and Ranking Minority Member of
the Senate Subcommittee on Securities and Investment, Senate Committee on
Banking, Housing, and Urban Affairs; the Chairman and Ranking Minority
Member, Senate Committee on Homeland Security and Governmental Affairs;
the Chairman and Ranking Minority Member of the House Committee on
Government Reform; the Chairman and Ranking Minority Member, House
Committee on Financial Services; and other interested congressional
committees. We are also sending copies to the Chairman of the Securities
and Exchange Commission and the Chairman of the Public Company Accounting
Oversight Board. We will make copies available to others upon request. The
report will be available at no charge on our Web site at [4]h
ttp://www.gao.gov.
If you have any questions concerning this correspondence, please contact
me at (202) 512-5837 or [email protected]. Contact points for our
Office of Congressional Relations and Public Affairs may be found on the
last page of this correspondence. Other key contributors to this
correspondence include Dan Blair (Assistant Director); Martha Chow; M'Baye
Diagne; Amanda Elkin; Lawrance Evans, Jr.; John Fisher; Joe Hunter;
Jeffrey Miller; John Saylor; and Richard Vagnoni.
Sincerely yours,
Orice M. Williams
Director, Financial Markets and
Community Investment
Enclosures
Enclosure I
To determine the number of financial restatement announcements since
October 1, 2005, we employed substantially the same methodology used in
our prior reports, in which we analyzed the period from January 1, 1997,
through June 30, 2002, and July 1, 2002, through September 30, 2005.^1 We
identified restatements of previously reported financial results announced
from October 1, 2005, through June 30, 2006, using the Lexis-Nexis online
information service to search for press releases and other media coverage
on restatements. When developing our search methodology for identifying
restatements for our prior reports, we reviewed the approaches used in
several academic and nonacademic research papers.^2 Our search methodology
was constructed to maximize the number of potentially relevant articles
for our consideration (and minimize the potentially irrelevant ones) given
the focus of our research. Using the Lexis-Nexis "Power Search" command
and the "US Newspapers and Wires" database, we performed keyword searches
using variations of "restate" as well as the terms "adjust," "amend," and
"revise"--all within 50 words of "financial statement" or "earning."
As was the case in our prior reports, no comprehensive, authoritative
database of financial restatement announcements exists that is, to our
knowledge, publicly available. While several researchers have constructed
and maintained their own financial restatement databases, these lists are
generally proprietary and are not publicly available. Moreover, these
researchers may have a different focus from ours, and may use different
methods and criteria for constructing their databases, as well as
different sample periods, making it difficult to directly compare the
database of restatements that we constructed with the databases that
others have compiled. Our database, which includes 396 restatement
announcements, should be viewed as a sample of restatements by publicly
traded companies identified using our particular search methodology. We
reviewed the Securities and Exchange Commission's (SEC) Electronic Data
Gathering, Analysis, and Retrieval system filings, and companies' Web
sites to verify the accuracy of restatement announcement data.
Although there are many reasons for restatements, most restatements
involve more routine reporting issues (such as a merger or stock split)
and are not symptomatic of financial reporting fraud and/or accounting
errors. Consistent with our prior reports, we generally specified
financial reporting fraud and accounting errors--previously referred to as
accounting irregularities in the 2002 report--to include so-called
"aggressive" accounting practices, intentional and unintentional misuse of
facts applied to financial statements, oversight or misinterpretation of
accounting rules, and fraud. Given the general change in attitude toward
what issues may warrant restatements in the post Sarbanes-Oxley Act
environment, we also included restatements that involved computational
errors. Also, we included in our database each restatement that met our
criteria, regardless of its impact (positive or negative) on the restating
company's financials. We excluded restatement announcements that resulted
from normal corporate activity or simple presentation issues--unless we
determined that there was some irregularity involved. For example, we
excluded financial statement restatements resulting from mergers and
acquisitions, discontinued operations, stock splits, issuance of stock
dividends, currency-related issues (for example, converting from Japanese
yen to U.S. dollars), changes in business segment definitions, changes due
to transfers of management, changes made for presentation purposes,
general accounting changes under generally accepted accounting principles
(GAAP), and litigation settlements. As a general rule, we also excluded
restatements resulting from accounting policy changes.^3 We excluded these
financial statement restatements because they did not necessarily reveal
previously undisclosed, economically meaningful data to market
participants.
Enclosure II: Listing of Financial Restatement Announcements,
October 1, 2005, through June 30, 2006
Source: GAO.
Enclosure III: Listing of Financial Restatement Announcements, July 1,
2002 through September 30, 2005
Source: GAO.
(250301)
References
Visible links
3. http://www.gao.gov/cgi-bin/getrpt?GAO-06-1079sp
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