Key points: in the aggregate for 2006, restatements are up - way up. According to the article, “1,244 U.S. companies and 112 foreign companies—filed 1,538 financial restatements to correct errors represent 9.8 percent of all U.S. public companies. In 2005, only one in 12 companies restated their financial results.”
But that’s not the whole story. Chop up the data among the market caps of the companies doing the restating, and you get some insight into the effectiveness of Sarbanes-Oxley Section 404 reviews. Among the companies that had been evaluating their internal control systems and having auditor opinions expressed on them, the number of restatements fell by 14%. Hard to call that mere coincidence, one would think.
Likewise, it would be hard to call mere coincidence the rise in restatements among companies who didn’t have internal control reviews. Restatements among the small fry - the very same ones who resist internal control evaluation and attestation - rose 40%.
Along the lines of the ancient philosophical question, “If a tree falls in a forest and nobody is there, does it make a sound?” - consider this one: “Is a law really a law if it never goes into effect?”
Or maybe: “If a company’s investors are left holding the bag because the company’s misreporting to them could have been prevented by compliance with a law they passed - do politicians care?”
I guess the answer to that one is, it depends on who’s voting.