Senator Paul S. Sarbanes, the Chairman of the Banking, Housing, and Urban Affairs Committee, is requesting the General Accounting Office (GAO), the investigative arm of the Congress, to probe into the "proliferation of restatements of earnings and other financial data which have been issued in recent years by publicly traded companies." A large number of companies over the past few years, including Enron, Cendant, and Waste Management, have restated their earnings after which their shareholders lost a lot of the value of their investments.

Sarbanes is asking the General Accounting Office to provide him with a list and brief description of all restatements made in the period from 1997-2002, and provide an analysis of the losses to shareholders, including those holding affected stocks in 401(k) plans, that occurred in the period immediately following the restatements. He is requesting the GAO to provide him with recommendations that "can be put in place to reduce the incidence and harmful effects of public companies' financial restatements in the future."

Key questions the Senate Banking Committee Chairman wants answered are: the principal reasons why these restatements are taking place; the immediate and intermediate impacts of these restatements on the value of company stock; the effects of such accounting restatements on shareholders' confidence and on the markets; and the existing regulatory structures whose purpose is to prevent restatements.

This is the third inquiry Sarbanes has made to the General Accounting Office in the wake of the Enron Corp. collapse. He has also asked the GAO to investigate the investment of employee retirement funds in company stock and also to report on the adequacy of financial reporting in the United States.

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