Fewer Firms Restated Financial Results in 2003
washingtonpost.com
By Carrie Johnson
Washington Post Staff Writer
Tuesday, January 13, 2004; Page E01
The number of public companies restating their financial results in 2003 dipped slightly from the previous year, a signal that the worst of the nation's accounting troubles may be receding, a new study said.
The Huron Consulting Group LLC, a Chicago-based forensic accounting and turnaround firm, yesterday reported that 323 public companies changed their previously released financial reports because of accounting errors and irregularities last year, down from 330 in 2002.
"It's not really a cause for celebration, but it is a positive sign," said Joseph J. Floyd, chief operating officer for Huron's financial and economic consulting practice.
Corporate accounting practices have been under unprecedented scrutiny since financial scandals led to bankruptcy for Enron Corp. and WorldCom Inc. In 2002, Congress created a new board to oversee the accounting industry and banned auditors from performing some services for clients that could compromise their independence.
Huron said the "leading cause" for financial restatements last year was mistakes and improprieties in how companies booked reserve and contingency accounts. The study also reported that 63 percent of last year's restatements came in the form of changes to companies' annual financial reports filed with the Securities and Exchange Commission. Those reports traditionally receive more stringent reviews from outside auditors than do reports filed quarterly with the SEC.
Floyd noted that the study is a lagging indicator of accounting problems since it tracks the dates that restatements are officially filed rather than the earlier periods that they cover.
Industry experts said that auditors are getting tougher in their reviews of client companies after a wave of accounting blowups, but that problems dating back to the 1990s persist. For instance, said Lynn E. Turner, a former chief accountant at the SEC, the current restatement rate is still double what it had been five years ago.
Turner pointed out that some of the restatements studied by Huron came even after Congress required top corporate executives to swear to the accuracy of their financial reports beginning in August 2002.
"Given that we had a runaway market in the 1990s, you just don't change that type of culture overnight," said Turner, a managing director of research at Glass, Lewis & Co. "It takes a while to put on the brakes. The train is slowing, but you sure as hell don't want to get out in front of it." |
