Smaller Companies With Self-verified Financial Controls More Likely to Restate Results
A new study from Audit Analytics supports the view that smaller companies should not be exempt from Sarbanes-Oxley rules requiring companies to have auditors attest to the strength of their internal financial controls. (Complimentary download)
An amendment to pending financial regulation reform legislation would exempt firms with a market capitalization of less than $75 million from including an independent auditor report on their internal controls over financial reporting.
But the Audit Analytics study finds that companies that have not yet had an auditor’s review of internal-control reports are more likely to have a restatement than larger companies, which are required to do so. This is despite the fact that their managements claimed to have effective controls.
The analysis divides filers into two groups: (1) Those that filed an auditor attestation and (2) those that filed a “management-only” report. These two groups of filers were then further separated according to whether they had disclosed effective Internal Controls over Financial Reporting (ICFRs), ineffective ICFRs or had not disclosed their ICFR status.
Key findings of the report:
- The rate of restatements filed either 90 days before or at any point after a disclosure of effective ICFRs was 46% higher among companies that filed management-only reports as compared to those that filed auditor attestations.
- When an auditor is involved in a company’s ICFRs assessment and there is a subsequent financial restatement, the disclosure that past financials cannot be relied upon is given to the public more promptly.
The full report Restatements by SOX 404 Issuers is available free of charge to Research Recap users for 30 days by special arrangement with Audit Analytics, an Alacra content partner. After 30 days, the report will revert to its regular AlacraStore price of $49.00)
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
