Riding a Tiger without Being Eaten - RePub - Erasmus Universiteit ...

stock ticker symbols, exchange market names, dates of the announcement, entities
that prompted the restatement, and the reason for the restatement. The GAO also
made this database electronically available. One obstacle for impact within either the
capital or financial markets and/or in the academic arena was that the GAO failed to
include stock price movements around the dates of the restatement announcements,
as the agency obtained such data from proprietary resources.
In July 2006, the GAO again updated its 2002 report alongside its second restatement
report to the US Senate5 . A major finding in the new report, covering the period from
2002-05, was that stock price movement in the days surrounding a restatement
announcement were much lower than found in the original 2002 report (-9.5 per
cent for the period from 1997 to mid-2002, and -2 per cent for the mid-2002 to 2005
period). The report also compares the restatement database developed by GAO to
databases developed by both Huron Consulting and Glass, Lewis & Co. 6
Following the implementation of the Sarbanes-Oxley Act in July 2002, the July 2006
report signaled that the strong increase in restatements in the initial 2002-05 period
may indeed have been caused by:
• Company executives focusing on financial reporting accuracy that resulted
from the certification of financial reports by management as required by
Section 302 of the Sarbanes-Oxley Act.
• Company self-assessment of the quality of internal controls on financial
reporting as required by Section 404 of the Sarbanes-Oxley Act, and the
opinion thereon issued by the independent auditors.
• Issuance of new auditing standards also covering standards on fraud
identification by the newly founded PCAOB (responsible since 2003 for the
supervision of the accounting profession).
• Increased staffing and review by SEC and other regulatory/judicial bodies.
The report found that in the period 2002-05, large companies (those with assets
greater than US $1 billion), continued to account for an increasing share of companies
engaging in restatement, growing from some 30 per cent in 2002, to more than 37 per
5 ‘Financial Restatements: Update of Public Company Trends, Market Impacts, and Regulatory Enforcement Activities (GAO-06-678)’ – it also
includes an electronic (updated) version of the restatement database (GAO-06-1079SP).
6 These reports/databases are important as they will be used for determining the sample of restatement companies we have used in the
quantitative analysis sub-study on analysts perceptions (see Study 2).
Chapter 1 - Introduction and Historical Overview
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