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Secretary Paulson announced the completion of a study, part of his effort to encourage
The study provides an in-depth looks at the soaring number of financial re-statements in the years before and after the Sarbanes-Oxley Act. Financial re-statements grew nearly eighteen-fold in this time, from 90 in 1997 to 1,577 in 2006 with acceleration in re-statement activity occurring in 2001 before the implementation of the Sarbanes-Oxley Act.
However, re-statements associated with fraud and revenue declined after 2001. Fraud was a factor in 29 percent of all 1997 re-statements, but only 2 percent of 2006 re-statements. The proportion of revenue-related re-statements also decreased from 41percent in 1997 to 11 percent in 2006.
Market reactions to the re-statements dampened over the decade study period, while the number of re-statements grew. Market reaction to financial re-statements tended to be more negative when the re-statement involved fraud or revenue errors.
Additionally, the study noted that re-stating companies are typically unprofitable even before the re-statement. In the year prior to announcing a re-statement, more than half of re-stating companies reported a net loss.