Can I Have a Mulligan on Our Financials?

Audit Analytics found that 1,876 businesses restated their financials last year. The growth came from small-capitalization firms, larger firms actually slightly reduced restatements in 2006. With the number of restatements more than four times the 2001 number of 452, it appears that compliance with Sarbanes-Oxley drives a large number of the restatements. Smaller companies seem to have their greatest problems with debt vs. equity on financing instruments, while larger companies continue to struggle with executive compensation.

In my mind, restatements are less a signal of present reporting problems than of prior reporting problems. Nevertheless, the number of restatements could be argued to be a backhanded proof of the efficacy of Sarbanes-Oxley, especially its internal control provisions. The restatement count for larger firms also may add fuel to the drive to reform executive compensation, which I discussed Monday.