FOR IMMEDIATE RELEASE: | CONTACT: Jesse Jacobs - 202-224-4524 |
Wednesday, October 23, 2002 | Craig Davis - 202-224-7391 |
Senator Paul S. Sarbanes (D-MD), Chairman of the Banking, Housing, and Urban Affairs Committee, today released a General Accounting Office (GAO) report that provides a comprehensive analysis of accounting restatements. The study, "Financial Statement Restatements - Trends, Market Impacts, Regulatory Responses, and Remaining Challenges" examines 919 financial restatements made by public companies between January 1, 1997 and June 30, 2002 due to accounting irregularities.
In January, Sarbanes requested the GAO, the investigative arm of Congress, to probe into the proliferation of restatements of earnings following the increasing number of companies restating their earnings after which shareholders lost a lot of value of their investments.
"Frequent restatements of earnings go directly to the heart of our financial system, because by raising questions about the reliability of published financial statements they threaten to undermine investors' confidence in the way our securities markets operate," Sarbanes wrote at the time of the request for the GAO investigation.
"The results of this probe demonstrate that investors have suffered significant financial harm when the public companies in which they invested misrepresented their financial condition and later restated their financial statements, and this has been a growing problem over the past five years," the Chairman said today as he released the GAO findings. Sarbanes also noted that the findings in the report corroborate testimony received by the Banking Committee during ten days of hearings earlier this year and the problems which the Sarbanes-Oxley Act sought to remedy.
Specifically, the General Accounting Office found:
Sarbanes noted that, "In light of this comprehensive additional evidence of the harm that accounting restatements cause, it becomes even more necessary that we have a strong regulatory structure governing accounting. I call on the SEC to fill the new Public Company Accounting Oversight Board with, as the statute requires, 'prominent individuals of integrity and reputation who have a demonstrated commitment to the interests of investors and the public, and an understanding of the responsibilities for and nature of the financial disclosures required of issuers under the securities laws and the obligations of accountants with respect to the preparation and issuance of audit reports with respect to such disclosures.'"
The GAO also found that the SEC needs additional resources for more staff and technology to meet the current challenge. Sarbanes wrote to President Bush on October 18 seeking an increase in funds over the FY 2002 level for the SEC to carry out its additional duties as mandated in the Sarbanes-Oxley Act of 2002.
A copy of the full 262 page report can be obtained by accessing it at: www.gao.gov. Report number: GAO-03-138.
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