Audit Analytics 2008 Restatement RPT

February 2009
2008 Financial Restatements

An Eight Year Comparison
Mark Cheffers, CPA, CEO

mcheffers@ivesinc.com
508.476.7007 x223
Don Whalen, Esq., Research Director

dwhalen@ivesinc.com
508.476.7007 x222
Olga Usvyatsky, Research Analyst

ousvyatsky@ivesinc.com
508.476.7007 x248
Table of Contents
Introduction 1
Database Overview 2
Methodology 2
Population 2
Executive Summary 3
Total Restatements per Year (Graph and Table) 10
Total Annual Restatements Only per Year (Graph and Table) 11
Yearly Percentage of Quarterly vs. Annual Restatements (Graph and Table) 12
Largest Negative Restatements by Year (Graph and Table) 13
Restatements Breakdown by Market (Table) 14
Cumulative Impact on Net Income of Publicly Traded Companies (Table) 14
Restatements with No Impact on Income Statements (Table) 15
Average Restatement Period per Year (Graph and Table) 16
Average Number of Issues Per Restatement (Graph and Table) 17
Restating Registrants by Accelerated Filer Status (Graph and Table) 18
Average Number of Days to Restate (Graph and Table) 19
Stealth Restatements (Graph and Table) 20
Restatement Issue Breakdown by Year (Table) 21
Debt, Quasi-Debt, Warrants & Equity (BCF) Security Issues (Graph and Table) 22
Expense (Payroll, SGA, Other) Recording Issues (Graph and Table) 23
Revenue Recognition Issues (Graph and Table) 24
Deferred Stock-Based and/or Executive Compensation Issues (Graph and Table) 25
Liabilities, Payables, Reserves and Accrual Estimate Failures (Graph and Table 26
Acquisitions, Mergers, Disposals, Re-Organization Accounting Issues (Graph and Table) 27
Cash Flow Statement (SFAS 95) Classification Errors (Graph and Table) 28
Tax Expense/Benefit/Deferral/Other (FAS 109) Issues (Graph and Table) 29
Definitions for Restatement Issues 30
Overview: Audit Analytics® 33

2008 Financial Restatements: An Eight Year Comparison
Introduction
Last year, the restatement review by observers, however, attribute the decline
Audit Analytics found that after six years in restatements, to some extent, to a belief Total Restatements by Year
of consecutive increases, calendar year that the SEC relaxed standards in 2008
2007 experienced the first decline in regarding the materiality of errors and the Unique Filers
Restatements
restatement disclosures as compared need to file restatements. This belief was
to the year prior. In addition to a drop in reinforced in August of 2008 when the
quantity, the restatements dropped in Advisory Committee on Improvements
severity. The downward trend indentified to Financial Reporting (ACIFR) submitted 1800
1565
in 2007 continued in 2008. its final report to the SEC that concluded 1111 1235
that the number of restatements 778 869
in the recent years was too

In 2008, and for the first time, high and, at times, caused by 2006 2007 2008
the percentage of stealth minor errors that would not have

triggered a restatement prior
restatements filed with the to 2002. The committee noted
Average Restatement
Period Per Year
that unnecessary restatements
SEC represented over 50% harm investors because the Average Number of Days Restated
of all restatements. process of restating is costly

and, ironically, stifles the flow of
financial information because the 718 646
479
During 2008, public companies filed attempt to disclose corrected past financial
869 restatements, a drop of 29.6% from information causes a company to refrain 2006 2007 2008
the 1235 restatements filed in 2007. In from disclosing current financial data until
addition to a drop in quantity, calendar the restatement process is completed (a
year 2008 experienced a continued drop “dark period”). Some observers believe
in severity. When reviewing the adverse that the ACIFR’s recommendations about Average Issues
effect of the restatements filed in 2008, restatements were consistent with practices Per Restatement
Audit Analytics found a reduction (or already adopted by the SEC and that these Average Number of Issues
nearly no change) in severity in every relaxed policies accounted for some of the Per Restatement
criteria quantified: (1) the negative impact decline in restatements in 2008.
on net income, (2) the average cumulative One other concern expressed by the
impact on net income per restatement, ACIFR was the quantity of stealth 2.01 1.90 1.66
(3) the percentage of restatements with restatements. The SEC requires
no impact on income statements, (4) registrants to disclose within four business 2006 2007 2008
the average number of days restated, days a determination that past financial
and (5) the average number of issues restatements should no longer be relied
identified in the restatements. In addition, upon. This disclosure is to appear in Item Stealth Restatements
the number of days a company required 4.02 of an 8-K. A stealth restatement is
to file a restatement dropped dramatically defined as a restatement contained in a Percentge Stealth
in 2008. All these factors appear to be a periodic report without a prior disclosure in 51.09%
positive manifestation of improved internal Item 4.02. Although the number of stealth
41.33% 41.30%
30.61%
controls over financial reporting (ICFRs) restatements decreased since 2006,
adopted pursuant to the Sarbanes Oxley the percentage of such restatements
Act of 2002. The improved ICFRs not increased to about 51% in 2008. 2005 2006 2007 2008
only increased the accuracy and reliability Therefore, in 2008, and for the first time, 2005 2006 2007 2008
of more corporate financial disclosures, the percentage of stealth restatements
but gave companies the tools needed filed with the SEC represented over 50%
to quickly correct accounting errors of all restatements filed for the year. 1
when they nevertheless arose. Some
Database Overview
The Audit Analytics Database includes data from more than 9000 financial restatements and/or non-reliance filings
disclosed by over 6000 SEC public registrants (big and small, foreign and domestic) since January 1, 2001. In addition
to the areas identified in the attached charts the database employs a taxonomy (issue classifications) of more than
40 different accounting error categories (eg., Cash Flow Statement (FAS 95), Tax (FAS 109), Revenue Recognition,
Intangible Assets, etc.). Search results from this level of granularity can be related to other demographic data such as
industry, financial size, filing designation, location, audit firms and any number of peer groups. The relational nature of the
database allows the researcher to introduce and compare financial restatement search results into other data sets such
as accelerated filer status, legal exposures, director and officer changes, auditor changes, auditor fees, internal controls
reports and other data populations. This content extension further allows the analyst to identify anomalies and market
patterns that would not be readily apparent, to even other Audit Analytic users, without performing this layered approach.
Methodology
This 2008 Restatement Briefing Paper was compiled from data searched, categorized, and extracted from the Audit
Analytics database. Restatement records are originated from one of two sources: 8-Ks or periodic reports (10-Ks,
10-K/As, 10-Qs, 10-KSB, etc.). Our restatement database covers all types of filer types, accelerated filers (“AF”),
non-accelerated filers, funds and trusts, new company registrations, small business filers and foreign registrants. Our
methodology is designed to identify so-called stealth restatements (those that file a restatement in a periodic report
without first announcing it in Item 4.02 of an 8-K) by utilizing several manual and automated review procedures. After
beginning a record that identifies a restatement cause or issue, we subsequently attach filings that address or add
information to that original record, in essence creating a timeline. The timeline frequently begins with a press release or
Item 4.02 disclosure. Generally, we consider such a history of filings to be one restatement. In certain circumstances,
however, a company clearly identifies a completely new issue in a subsequent filing, and therefore this new issue is
treated as a new restatement. For example, if a company files an 8-K indicating a revenue recognition problem, but then
files a subsequent 10-K/A that discloses not only a revenue recognition issue, but also a Cash Flow Statement (FAS
95) issue, then a separate and second record is created to track that newly disclosed restatement issue as a distinct
restatement. We do not, however, identify the revenue recognition issue in the second restatement so as not to double
count the restatement issues in this process. Generally, the intent is to err on the side of combining new disclosures
(such as a change in period or amounts) in restatements unless it is clear that the issues are different. Since we track
newly disclosed issues separately, and in some instances a filer will file multiple restatements, the number of restatements
we report is more than the number of unique filers who report them. As a result, we provide both data points (number of
unique filers and number of reports) in our analysis for consideration.
Population
As noted above, the Audit Analytics restatement database contains more than 9000 financial restatements and/or non-
reliance filings disclosed by over 6000 SEC public registrants since January 1, 2001. While keeping the database current,
Audit Analytics also continually reviews and updates the historical population to refine the data set. For example, Audit
Analytics reviews past restatements filed in close succession by a common registrant to determine if such restatements
identified in the database as distinct (as discussed in the Methodology section above), should more appropriately be
characterized as a single restatement. Other improvements included research to identify press releases regarding
restatements and adding this event to the history of the restatement. Since Audit Analytics begins a restatement’s
history at the time of the first announcement, the discovery of an earlier announcement will cause an appropriate shift
in the restatement’s history. In addition, a review process exits to discover instances when an anticipated restatement
announced in an 8-K does not subsequently materialize because the consequences were not as severe as expected
or the company chose to take a charge in the fourth quarter in lieu of a restatement. As indentified, these abandoned
8-Ks, and initial restatement history, are removed from the database. These ongoing efforts provide the most current and
refined the population of restatements and non-reliance filings available.
2
Population (continued)
During the research performed for this brief, the population described above is further filtered in order to avoid the double
counting of restatements when presenting the overall results. First, subsidiaries are removed if the parent also filed
a restatement. In addition, interconnected registrants are identified and grouped together if each filed corresponding
restatements. For example, an oil drilling entity may create partnerships and individual SEC registrants for each of
many oil wells (or other assets/licenses). Under such a scenario, a large number of related partnerships may each
file analogous restatements. In order to avoid a skew in the analysis that can result from counting all the equivalent
restatements from interconnected registrants, Audit Analytics identified relationships and counted only one member of the
group (and its restatement) as a representative of that group.
Executive Summary - Financial Restatements 2001 to 2008

1. Calendar year 2008 has continued the decline in restatement disclosures noted in 2007.
In 2007, restatements declined by 31.4% (from 1800 to 1235). This decline continued in 2008, which experienced a total
of 869 restatements filed by 778 unique companies. (See graph on right and table on page 10: Total Restatements by
Year.) These figures represent a 31.4% drop in the amount of restatements (1235 down to 869) and a 30% drop in the
number of unique filers (1111 down to 778). The downward trend appears to be attributable to the improved reliability of
internal controls over financial reporting (ICFRs) implemented in response to the Sarbanes Oxley Act of 2002, but other
observers suspect that the drop in restatements, at least to some extent, is due to a more relaxed approach adopted by
the SEC regarding materiality and the need to file restatements. (See Executive Summary Item 6 on page 8.)
Total Restatements by Year
Unique Filers
Restatements
1800
1555 1565
1403
1235
1111
957
819 875 869
759 778
647 696
579 616
2001 2002 2003 2004 2005 2006 2007 2008
3
Executive Summary - Financial Restatements 2001 to 2008 (continued)

2. In addition to a drop in quantity, calendar year 2008 experienced an equivalence or drop in the severity of restatements
as compared to prior years. (continued)
a. Negative Impact on Net Income

When looking at net income, both 2004 and
2005 experienced restatements that resulted
Largest Negative Restatements
in very large negative adjustments.1 The (U.S. $ in Millions)
largest adjustment in 2006 was smaller, but
nevertheless substantial. In 2004, Federal Largest Negative Restatements
National Mortgage Assoc. (Fannie Mae)
restated its net income to reflect a negative $7,000
$6,355
6.335 billion dollar impact while, in 2005,
American International Group Inc. (AIG) $6,000
$5,193
disclosed a negative 5.193 billion dollar
$5,000 $4,513
impact. In 2006, Navistar International
Corporation disclosed a negative 2.377 billion $4,000
dollar impact. (See graph on right and table
$3,000 $3,465
on page 13: Largest Negative Restatements $2,377
by Year.) In contrast, the adjustments of
$2,000
the last two years were much lower than the
past. General Electric’s negative adjustment $1,000 $605
$341
of 341 million dollars was the largest in 2007
and GLG Partner’s negative 605 million dollar $0
2002 2003 2004 2005 2006 2007 2008
adjustment was the largest in 2008. Although
a little higher than the prior year, the dollar
value of 2008 ranks with 2007 as a very low
adjustment compared to the 5 years before 2007.
b. Negative Impact on Net Income

The continued drop in severity of restatements in 2008 is
best displayed by calculating, during each of the last four Average Income Adjustment
calendar years, the impact an average restatement had on Per Restatement
the net income of companies traded on one of the three major (companies on Amex, NASDAQ,
and NYSE)
American stock exchanges (Amex, NASDAQ, and NYSE).
The typical restatement in 2005 and 2006 had a negative 2005 -$20,545,729.33
adjustment of over 20 million dollars. (See tables on page 2006 -$22,552,509.53
14: Cumulative Impact on Net Income of Publicly Traded
2007 -$7,444,280.39
Companies (on Amex, NASDAQ, or NYSE).) This figure
dropped substantially in 2007, when the average restatement 2008 -$6,125,966.93
had a negative impact of 7.4 million dollars. The figure
dropped again in 2008, with an average negative impact
of 6.1 million dollars. Therefore, not only did the number of
restatements fall in 2008, each of these fewer restatements
had a smaller negative effect than in the prior three years.
1
This analysis is limited to those companies presently traded on one of the three major American stock exchanges (Amex, NASDAQ, and NYSE).
4

2. In addition to a drop in quantity, calendar year 2008 experienced an equivalence or drop in the severity of restatements
as compared to prior years.
c. No Impact on Income Statements

When reviewing a restatement’s impact on income statement over the Percentage of Restatements
last four years, from those companies trading on one of the three major with No Impact on Income
Statements (companies on
American stock exchanges (Amex, NASDAQ, and NYSE), the largest
Amex, NASDAQ, and NYSE)
percentage of restatements that had no impact on earnings occurred in
2008. Again, this measurement indicates that restatements are not as 2005 24.88%
severe in 2008 as compared to the prior three years. In 2008, a total of 99 2006 29.57%
out of 296 restatements had no impact on income statement (36. 45%) as
2007 33.18%
compared to 33.18% in 2007; 29.57% in 2006; and 24.88% in 2005 ((See
tables on page 14: Restatements with No Impact on Income Statement 2008 33.45%
(companies on Amex, NASDAQ, and NYSE).)
d. Average Number of Days Restated

As shown in the graph on the right, the number of Average Restatement Period Per Year
days that were restated (the restatement period)
of the average restatement in a given year Average Number of Days Restated
peaked in 2005. (See also, table on page 15:
Average Restatement Period per Year.) In 2005,
the average restatement period was 747 days. In
2006, the time dropped to 718 days and dropped
again in 2007 to 646 days. This downward trend 747 718 646
was followed by a more substantial drop in 2008, 537 573 621
where the average restatement period was 479 466 479
days. Therefore, when compared to the prior
three calendar years, the average restatement in
2008 did not have to look back as far into the past 2001 2002 2003 2004 2005 2006 2007 2008
in order to correct previous financial statements.
e. Average Number of Issues per Restatement

In addition to identifying the number of Average Issues Per Restatement
restatements filed over the past seven years,
Audit Analytics reviewed each restatement for the Average Number of Issues Per Restatement
accounting issues implicated. From a taxonomy
comprised of over 40 issues monitored, this
report selected the most significant and relevant
24 accounting issues for analysis. (See table on
page 20: Restatement Issue Breakdown by Year.) 2.43
2.12 2.13 2.19
A review of these issues since 2001 shows that 2.00 2.01 1.90
calendar year 2008 has experienced the lowest 1.66
average number of issues per restatement. (See
graph on right and page 16: Average Number of
Issues per Restatement.) In 2005, the average 2001 2002 2003 2004 2005 2006 2007 2008
number of issues peaked at 2.43 issues per
restatement. In 2008, the average restatement
implicated only 1.66 financial accounting issues. 5

3. A restatement population breakdown based on size (accelerated filer status) and location (U.S. or foreign) shows that
all four categories have shown a decrease in adjustments since 2006.
The restatement filer population can be separated into four categories based on size and location: (1) accelerated
foreign filer, (2) non-accelerated foreign filer, (3) accelerated U.S. filer, and (4) non-accelerated U.S. filer. A review
of these categories shows that all four experienced a drop in restatements from 2006 to 2007 and, again, from 2007
to 2008. (See tables on page 17: Restating Registrant by Accelerated Filer Status.) For example, a total of 899 non-
accelerated U.S. registrants (unique registrants) filed restatements in 2006 followed by 658 in 2007 and 446 in 2008.
This breakdown shows that public registrants as a whole are improving the accuracy of their financial statements
regardless of size or location.
4. The Number of Days Needed by Registrants to File a Restatement has Dropped the Last Two Years.
As shown in the graph on the right, the average number of days a registrant needed to file a restatement after initial
disclosure peaked in 2006, when the average duration required to restate was about 59 days. This time period dropped
to about 30 days in 2007 and continued to drop to about 11 days in 2008.
The smaller time periods could be caused by a number of factors. In general, the number of days needed to restate
is less for restatements made in response to less complicated errors. As shown in Executive Summary Item 2.d and
2.e, both the restatement period and the average number of issues decreased in 2008. In addition, the percentage of
stealth restatements increased in 2008, which would cause a decrease in the average time period needed to restate.
(See Executive Summary Item 5 on next page.) Furthermore, improved internal controls over financial reporting
(ICFRs) would allow a company to recalculate and restate financials more quickly after an error is discovered.
Improved ICFRs could cut response time notwithstanding the complexity of the restatement task.
Number of Days to Restate

Average Number of Days to File Restatement
58.71
35.48 38.17
31.89 30.13
26.36
11.14
2002 2003 2004 2005 2006 2007 2008
6

5. Although the Number of Stealth Restatements has Decreased Since 2006, the Percentage of Such Restatements
Increased to Over 50% in 2008.
In response to Section 409 of the Sarbanes-Oxley Act of

2002, entitled “Real Time Issuer Disclosures,” the SEC
identified new reportable items that must be disclosed in Stealth Restatements
an 8-K. This new set of disclosure requirements became
effective on August 23, 2004. One of the new reportable Restatements with Missing Form 8-K, Item 4.02
events is the conclusion that a past financial statement
should no longer be relied upon. Such an event is to be
disclosed in an 8-K under Item 4.02, entitled Non-Reliance
on Previously Issued Financial Statements or a Related Audit
Report or Completed Interim Review. Therefore, in most 744
occurrences, the first disclosure of a past unreliable financial
476 510
statement should appear in the Item 4.02 of an 8-K filed with 444
four business days of the conclusion. The SEC expects an
Item 4.02 to precede the adjustment and will likely review
an instance where an Item 4.02 is filed on the same day as 2005 2006 2007 2008
an amended periodic report.2 A restatement that corrected
a clerical error, or restated cash flow, could be produced
quickly, but those requiring an investigation within the
company should be preceded by an Item 4.02 disclosure.
A stealth restatement, as defined in this analysis, is any

Stealth Restatements
restatement revealed in a periodic report without a prior Percentage Stealth
disclosure in Item 4.02 of an 8-K.3 As shown in the graphs to 51.09%
the right, although the number of stealth restatements have
41.33% 41.30%
gone down over the last two years, the percentage of such
restatements have increased. From 2007 to 2008, the number 30.61%
of stealth restatements dropped from 510 to 444. However,
because the total number of restatements also went down in
2008, the percentage of stealth restatements actually went
up. In 2007, stealth restatements represented 41.3% of all
restatements. In 2008, this percentage reached 51.1%.4 The
most notable stealth restatement in 2008 was filed by General 2005 2006 2007 2008
Motors when its 10-K made a 211 million-dollar negative
adjustment with no prior Item 4.02 disclosure. (See tables on
page 19: Stealth Restatements.)
2
ee Louise M. Dorsey, Speech by SEC Staff: Remarks Before the 2006 AICPA National Conference on Current SEC and PCAOB
S
Developments, (noting that “the trigger event is the decision that the financial statements are unreliable, not the completion of the restatement
process,” and therefore if “a company files a 4.02 8-K on the same day it files an amended periodic report to restate its financial statements,
it is highly likely that the staff would question the timing of the 8-K filing.” In such instances, the SEC would expect to find an adjustment that
corrected a clerical error or other error that would not require an internal investigation.
3
For example, the first disclosure could be in an annual report that provides the adjustment, in an NT filing (a notice of late filing), or in a press
release filed in an 8-K.
4
n August 1, 2008, the Advisory Committee on Improvements to Financial Reporting (ACIFR) submitted its final report to the SEC. This report
O
recommended that the instructions for the 8-K form be amended to decrease the number of stealth restatements. The ACIFR also made
recommendation concerning restatements in general. (See Executive Summary Item 6 on next page.) 7

6. The Advisory Committee’s Recommendations to the SEC and a Perceived Policy Shift on the Part of the SEC that may
have Resulted in Fewer Restatements.
On August 1, 2008, the Advisory Committee on Improvements to Financial Reporting (ACIFR) submitted its final report
to the SEC.5 Among other recommendations, the committee suggested that the SEC or FASB should issue guidance
on financial restatements. The ACIFR concluded that the number of restatements that occurred during the last few
years was too high and that many restatements resulted from accounting errors that were less significant than in
the years prior to 2002. The committee noted that investors are harmed by unnecessary restatements because the
restatement process is costly and, in addition, causes a cessation in the flow of financial information (a “dark period”)
until completion, a duration that can be longer than 12 months.
As a result, the ACIFR recommended an expanded use of professional judgment on the part of accountants and a
decision approach based the objective standard of a reasonable investor. Although all accounting errors should be
disclosed, the committee stated that all errors should not result in a restatement. An accountant should determine
whether or not an accounting error is material based on the needs and perspective of a reasonable investor responding
to all available information. (Recommendation 3.1). In addition, the conclusion regarding the appropriate method
for correcting a material error should be a separate and distinct decision also based upon the current investment
decisions of a reasonable investor. Therefore, a past material error that is unimportant to current investment decisions
would require prompt disclosure but not a restatement of the financial statements in which the error occurred.
(Recommendation 3.2). Since an auditor would be required to exercise greater judgment, the ACIFR recommended
that the SEC and PCAOB issue statements explaining how the agencies evaluate the reasonableness of accounting
judgments and what contemporaneous documents and information the agencies expect the auditor to retain in support
of such decisions. (Recommendation 3.5).
It is clear, based on the ACIFR’s final report of August 1, 2008, that the committee advocates that the SEC adopt an
approach and issue guidance that will reduce the number of financial restatements. Many the professionals observing
the SEC believe that the SEC already adopted such an approach many months prior to the issuance of the final report
and that the decrease in restatements in 2008, to some degree, is due to this change in approach.6 The amount of
decrease, if any, attributable to a change in SEC policy is uncertain.
5
Available at the SEC website: http://sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf
6
ee the Financial Week article of August 25, 2008, suggesting that many months prior to the recommendations of the ACIFR, the SEC already
S
relaxed its approach in order to reduce the number of restatements based on minor errors and to avoid restatements of prior periods if the
error had no impact on the current periods, an effort that would delay the disclosure of current financial information simply to correct historical
numbers. See Nicholas Fummell, Tumble in restatements sparks criticism of SEC, Financial Week, August 25, 2008, available at link below:
www.financialweek.com/apps/pbcs.dll/article?AID=/20080825/REG/860815
8

7. The top eight issues in 2008 have been common causes for restatements over the last seven years except for the cash
flow statements classification errors, an issue which has steadily increased in prevalence to be ranked third in 2008.
In 2008, the top eight accounting issues implicated in restatements were as follows:
• debt, quasi-debt, warrants & equity ( BCF) security issues;
• expense (payroll, SGA, other) recording issues; Restatement Issue Analysis
Cash Flow as a % of all restatments
• cash flow statement (SFAS 95);
• deferred, stock-based and/or executive compensation % of all restatements
issues; 14.00% 13.12%

• acquisitions, mergers, disposals, reorganization 12.15%
12.00%
accounting issues; 10.83%
• revenue recognition issues; 10.00%

8.49%
• tax expense, benefit, deferral and other (FAS 109) issues; 8.00%
• liabilities, payables, reserves and accrual
6.00%
estimate failures. 4.60%
4.00%
(See table on page 20: Restatement Issue Breakdown by 2.32%
2.01%
Year.) These eight issues have been a common source of 2.00%
0.49%
errors in each of the last eight years, except for the cash flow 0.00%
2001 2002 2003 2004 2005 2006 2007 2008
statement issue. In 2007, Audit Analytics noted the that cash
flow statement (SFAS 95) classification errors consistently grew
in prevalence during each of the last seven years and ranked number seven in 2007. This trend continued in 2008.
As shown in the graph above, only 0.49% of the restatements filed in 2001 restated cash flow. In 2002, however, the
percentage increased to 2.01% and stepped up each year to reach a value of 13.12% by 2008. (See tables on page 27:
Restatement Issue Analysis: Cash Flow Statement (SFAS 95).) In 2008, the issue now ranks third in the list above. As
shown below, a line graph of the top seven issues displays the climb of the cash flow issue and an overall convergence
of the top issues over the last eight years.
Frequency of Issue Occurence in Restatments

Historical Percentage of Top Seven Issues in 2008
30.00%
Debt, quasi-debt, warrants & equity
(BCF) security issues
Percent of Restatements Citing Issue
25.00%
Expense (payroll, SGA, other)
recording issues
20.00% Deferred, stock-based and/or

executive comp issues
15.00% Acquisition, mergers, disposals,

re-org accounting issues
10.00% Tax expense/benefit/deferral/

other (FAS 109) issues
Cash flow statement (SFAS95)

5.00% classification errors
Revenue recogntion issues

0.00%
2001 2002 2003 2004 2005 2006 2007 2008
9
Restatement Analysis - Total Restatements per Year
Unique Filers
Restatements
1800
1555 1565
1403
1235
1111
957
819 875 869
759 778
647 696
579 616
2001 2002 2003 2004 2005 2006 2007 2008
Unique Filers Restatements Growth Rate
2001 579 616

2002 647 696 12.99%
2003 759 819 17.67%
2004 875 957 16.85%
2005 1403 1555 62.49%
2006 1565 1800 15.76%
2007 1111 1235 -31.39%
2008 778 869 -29.64%
Notes
1) The research is based on SEC filings as of December 31, 2008 (database download of January 5, 2009).
2) The data counts all restatements when a registrant files multiple restatements.
3) The restatement population is filtered in order to avoid the double counting of restatements by assigning one representative for a group of
interconnected non-tickered companies that file analogous restatements. (See Population section on page 2 of report.)
10
Restatement Analysis - Total Annual Restatements Only per Year
Total Annual Restatements Only
Unique Filers
Annual Restatements
1261 1299
1140 1140
859
769
683
634
530 566 542
451 481 485
376 398
2001 2002 2003 2004 2005 2006 2007 2008
Total Annual Restatements Only by Year
Unique Filers Restatements Growth Rate
2001 376 398

2002 451 481 20.85%
2003 530 566 17.67%
2004 634 683 20.67%
2005 1140 1261 84.63%
2006 1140 1299 3.01%
2007 769 859 -33.87%
2008 485 542 -36.90%
Notes
3) Annual restatements include all the filings that disclosed affected period of 350 days or more.
4) The restatement population is filtered in order to avoid the double counting of restatements by assigning one representative for a group of
interconnected non-tickered companies that file analogous restatements. (See Population section on page 2 of report.)
11
Restatement Analysis - Yearly Percentage of Quarterly vs. Annual Restatements
Yearly Percentage of
Quarterly vs. Annual Restatements
Quarterly
Annual
62%
65% 69% 69% 72% 70%
71% 81%
38%
35% 31% 31% 29% 28% 30%
19%
2001 2002 2003 2004 2005 2006 2007 2008
Percentage of Quarterly vs. Annual Restatements
Total Quarterly Restatements Annual Restatements

Restatements Total % Total %
2001 616 218 35% 398 65%
2002 696 215 31% 481 69%
2003 819 253 31% 566 69%
2004 957 274 29% 683 71%
2005 1555 294 19% 1261 81%
2006 1800 501 28% 1299 72%
2007 1235 376 30% 859 70%
2008 869 327 38% 542 62%
Notes
3) Annual restatements include all the filings that disclosed affected period of 350 days or more.
4) The % columns are based on a total number of Restatements filed for the particular year (see also, table on page 10: Total Restatements by Year).
12
Restatement Analysis - Largest Negative Restatement by Year

(U.S. $ in Millions)
$7,000
$6,355
$6,000
$5,193
$5,000 $4,513
$4,000
$3,000 $3,465
$2,377
$2,000
$1,000 $605
$341
$0
2002 2003 2004 2005 2006 2007 2008
Total Annual Restatements Only by Year

Impact on Net Income
Company Market
(U.S. Dollars)
2002 TYCO INTERNATIONAL LTD /BER/ NYSE -4,512,700,000

2003 HEALTHSOUTH CORP. NYSE -3,465,294,000
FEDERAL NATIONAL MORTGAGE
2004 NYSE -6,335,000,000
ASSOCIATION (FANNIE MAE)
2005 AMERICAN INTERNATIONAL GROUP INC. NYSE -5,193,000,000
2006 NAVISTAR INTERNATIONAL CORP. NYSE -2,377,000,000
2007 GENERAL ELECTRIC CO NYSE -341,000,000
2008 GLG PARTNERS INC. NYSE -604,580,000
13
Restatement Analysis of Companies - Listed in Amex, NASDAQ or NYSE
Restatement Breakdown by Market

Unique Registrants Restating
2001 2002 2003 2004 2005 2006 2007 2008
Amex 8 12 26 34 51 61 55 41
Nasdaq 90 97 120 170 285 332 215 161
NYSE 41 71 95 124 210 180 135 76
OTC 89 80 93 119 226 403 338 333
Not listed 351 387 425 428 631 589 368 167
Total 579 647 759 875 1403 1565 1111 778
Notes
Cumulative Impact on Net Income of Publicly Traded Companies (on Amex, NASDAQ, or NYSE)
Negative Restatements Positive Restatements Total Restatements Average

Income
Aggregate Aggregate Adjustment
Negative Positive Total Aggregate
Negative Dollar Positive Dollar Per
Restatements Restatements Restatements Dollar Value
Value Value Restatement
2002 158 -$19,013,467,578 30 $522,517,814 188 -$14,318,949,764 -$76,164,626
2003 221 -$9,447,121,456 31 $715,429,514 252 -$8,731,691,942 -$34,649,571
2004 281 -$12,005,661,268 63 $822,631,353 344 -$11,183,029,915 -$32,508,808
2005 501 -$15,931,234,383 110 $3,377,793,765 611 -$12,553,440,618 -$20,545,729
2006 519 -$16,281,528,079 110 $2,095,999,582 629 -$14,185,528,497 -$22,552,510
2007 366 -$4,676,584,008 77 $1,378,767,797 443 -$3,297,816,211 -$7,444,280
2008 242 -$2,178,565,096 54 $365,278,885 296 -$1,813,286,210 -$6,125,967
Notes
2) The impact on an income statement reported in foreign currency is converted to US dollars using historical conversion rate as of the date of the
restatement announcement.
3) Data does not include 10 companies that have not yet, as of January 5, 2009, disclosed the dollar impact of their restatements.
14
Restatement Analysis of Companies - Listed in Amex, NASDAQ or NYSE (continued)
Restatements with No Impact on Income Statements

(companies on Amex, NASDAQ, and NYSE)
Restatements
Total Restatements %
with No Impact
2002 188 43 22.87%

2003 252 71 28.17%
2004 344 95 27.62%
2005 611 152 24.88%
2006 629 186 29.57%
2007 443 147 33.18%
2008 296 99 33.45%
Notes
The types of restatements that may have no impact on an income statement include, but are not limited to, restatements addressing (1) certain tax
adjustments, (2) cashflow statements, (3) debt reclassification from short term to long term, (4) earning per share adjustments, and (5) redistribution of
income from year to year without a net change in income.
15
Restatement Analysis - Average Restatement Period per Year
Average Restatement Period Per Year

Average Number of Days Restated
747 718
621 646
537 573
466 479
2001 2002 2003 2004 2005 2006 2007 2008
Average Restatement Period
Average # of
Restatements Growth
Days Restated
2001 616 466

2002 696 537 15.0%
2003 819 573 6.7%
2004 957 621 8.4%
2005 1555 747 20.4%
2006 1800 718 -3.9%
2007 1235 646 -10.1%
2008 869 479 -25.8%
Notes
2) For detail on the total number of restatements per year, see table on page 10: Total Restatements by Year.
3) The Total Days Restated is based on the non-reliance period disclosed by entities in their 8-K filings. The actual restated period may differ from the
period disclosed in an 8-K.
4) Data does not include 10 companies that had not yet restated as of January 5, 2009.
16
Restatement Issue Analysis - Average Number of Issues per Statement
Average Issues Per Restatement
Average Number of Issues Per Restatement
2.19 2.43
2.12 2.13
2.00 2.01 1.90
1.66
2001 2002 2003 2004 2005 2006 2007 2008
Average # of Issues per Restatement Notification
Average # of
Total Issues Total
Issues per
Restated Restatements
Restatement
2001 1233 616 2.00

2002 1474 696 2.12
2003 1748 819 2.13
2004 2099 957 2.19
2005 3784 1555 2.43
2006 3615 1800 2.01
2007 2344 1235 1.90
2008 1439 869 1.66
Notes
2) For detail on the total number of issues restated per year, see table on page 21: Restatement Issue Breakdown by Year.
3) For detail on the total number of restatements per year, see table named All Restatements by Year.
17
Restatement Analysis - Restating Registrants by Accelerated Filer Status
Restating Registrant by Accelerated Filer Status
Accelerated Filers US
Non-accelerated Filers US
899
705 658
464 472 516
447 446
307 273
204 198
2001 2002 2003 2004 2005 2006 2007 2008
Restating Registrant by Accelerated Filer Status
2003 2004 2005 2006 2007 2008
# % # % # % # % # % # %
Accelerated Foreign Filers 8 1.1% 6 0.7% 40 2.9% 33 2.1% 30 2.7% 11 1.4%
Non-accelerated Foreign Filers 83 10.9% 90 10.3% 142 10.1% 186 11.9% 150 13.5% 123 15.8%
Accelerated U.S. Filers 204 26.9% 307 35.1% 516 36.8% 447 28.6% 273 24.6% 198 25.4%
Non-accelerated U.S. Filers 464 61.1% 472 53.9% 705 50.2% 899 57.4% 658 59.2% 446 57.3%
Total Unique Restaters 759 875 1403 1565 1111 778
Notes
3) A registrant’s accelerated filer status is determined from the last filing of the relevant year.
4) Foreign filers include Canadian registrants
18
Restatement Analysis - Average Number of Days to Restate
Number of Days to Restate
Average Number of Days to File Restatement
58.71
35.48 38.17
31.89 30.13
26.36
11.14
2002 2003 2004 2005 2006 2007 2008
Average Number of Days

to File Restatements
Year Days
2002 31.89
2003 26.36
2004 35.48
2005 38.17
2006 58.71
2007 30.13
2008 11.14
Notes
3) For detail on the total number of restatements per year, see table named All Restatements by Year.
19
Stealth Restatements (Restatements with Missing Prior Form 8-K, Item 4.02)
Stealth Restatements
Restatements with Missing Prior Form 8-K, Item 4.02
744
476 510 Stealth Restatements

444
(Restatements with Missing Prior Form 8-K, Item 4.02)
Restatements
Total Percentage
with No Item
Restatements Stealth
2005 2006 2007 2008 4.02
2005 476 1555 30.61%

2006 744 1800 41.33%
2007 510 1235 41.30%
Stealth Restatements 2008 444 869 51.09%
Percentage Stealth
51.09%
41.33% 41.30%
30.61% Largest Negative Stealth Restatements

(Restatements with Missing Prior Form 8-K, Item 4.02)
First
Announcement Dollar Impact
Company
(Disclosure of Restatement
Form Type)
2005 2006 2007 2008 2005 AES Corp. NT -96,000,000

Washington
2006 10-K/A -337,000,000
Mutual, Inc.
Computer
2007 10-K -16,500,000
Sciences Corp.
General Motors
2008 10-K -211,000,000
Corp.
Notes
3) For detail on the total number of restatements per year, see table on page 10: Restatements by Year.
20
Restatement Issue Analysis - Issue Breakdown by Year

Restatement Issue Breakdown by Year
Accounting issue restated 2001 2002 2003 2004 2005 2006 2007 2008
# % # % # % # % # % # % # % # %
Debt, quasi-debt, warrants & equity ( BCF) security issues 144 23.38% 120 17.24% 120 14.65% 168 17.55% 324 20.84% 489 27.17% 282 22.83% 174 20.02%
Expense (payroll, SGA, other) recording issues 148 24.03% 167 23.99% 151 18.44% 149 15.57% 145 9.32% 286 15.89% 238 19.27% 125 14.38%
Cash flow statement (SFAS 95) classification errors 3 0.49% 14 2.01% 19 2.32% 44 4.60% 132 8.49% 195 10.83% 150 12.15% 114 13.12%
Deferred, stock-based and/or executive comp issues 90 14.61% 90 12.93% 109 13.31% 118 12.33% 192 12.35% 324 18.00% 177 14.33% 112 12.89%
Acquisitions, mergers, disposals, re-org accounting issues 127 20.62% 100 14.37% 129 15.75% 170 17.76% 241 15.50% 269 14.94% 168 13.60% 104 11.97%
Revenue recognition issues 124 20.13% 139 19.97% 170 20.76% 192 20.06% 226 14.53% 198 11.00% 166 13.44% 96 11.05%
Tax expense/benefit/deferral/other (FAS 109) issues 39 6.33% 50 7.18% 91 11.11% 120 12.54% 189 12.15% 176 9.78% 128 10.36% 91 10.47%
Liabilities, payables, reserves and accrual estimate failures 64 10.39% 95 13.65% 113 13.80% 159 16.61% 220 14.15% 235 13.06% 172 13.93% 85 9.78%
Accounts/loans receivable, investments & cash issues 48 7.79% 83 11.93% 83 10.13% 74 7.73% 159 10.23% 126 7.00% 100 8.10% 75 8.63%
Consolidation issues incl Fin 46 variable interest & off-B/S 43 6.98% 47 6.75% 85 10.38% 102 10.66% 143 9.20% 145 8.06% 57 4.62% 62 7.13%
PPE intangible or fixed asset (value/diminution) issues 69 11.20% 81 11.64% 112 13.68% 137 14.32% 206 13.25% 179 9.94% 90 7.29% 59 6.79%
Foreign, related party, affiliated, or subsidiary issues 58 9.42% 82 11.78% 101 12.33% 112 11.70% 209 13.44% 204 11.33% 122 9.88% 57 6.56%
Inventory, vendor and/or cost of sales issues 51 8.28% 70 10.06% 78 9.52% 88 9.20% 142 9.13% 130 7.22% 68 5.51% 49 5.64%
EPS, ratio and classification of income statement issues 28 4.55% 34 4.89% 35 4.27% 52 5.43% 90 5.79% 80 4.44% 63 5.10% 41 4.72%
Depreciation, depletion or amortization errors 30 4.87% 46 6.61% 49 5.98% 70 7.31% 235 15.11% 80 4.44% 50 4.05% 30 3.45%
Capitalization of expenditures issues 26 4.22% 51 7.33% 44 5.37% 53 5.54% 225 14.47% 57 3.17% 47 3.81% 29 3.34%
Gain or loss recognition issues 37 6.01% 42 6.03% 57 6.96% 41 4.28% 83 5.34% 69 3.83% 35 2.83% 25 2.88%
Balance sheet classification of assets issues 15 2.44% 21 3.02% 27 3.30% 34 3.55% 61 3.92% 53 2.94% 35 2.83% 20 2.30%
Debt and/or equity classification issues 29 4.71% 30 4.31% 58 7.08% 59 6.17% 57 3.67% 87 4.83% 52 4.21% 19 2.19%
Financial derivatives/hedging (FAS 133) accounting issues 16 2.60% 31 4.45% 13 1.59% 28 2.93% 65 4.18% 69 3.83% 36 2.91% 19 2.19%
Intercompany, investment in subsidiary/affiliate issues 23 3.73% 33 4.74% 31 3.79% 44 4.60% 89 5.72% 45 2.50% 22 1.78% 19 2.19%
Lease, SFAS 5, legal, contingency and commitment issues 17 2.76% 42 6.03% 52 6.35% 62 6.48% 285 18.33% 79 4.39% 48 3.89% 16 1.84%
Pension issues 2 0.32% 5 0.72% 17 2.08% 18 1.88% 32 2.06% 25 1.39% 24 1.94% 11 1.27%
Comprehensive income issues 2 0.32% 1 0.14% 4 0.49% 5 0.52% 34 2.19% 15 0.83% 14 1.13% 7 0.81%
Total Number of Issues Identified 1233 1474 1748 2099 3784 3615 2344 1439
Notes
3) The % columns indicate how many Restatements of the particular year affected the listed issue. The percentages are based on a total number of Restatements filed: 616 in 2001; 696 in
2002; 819 in 2003; 957 in 2004; 1555 in 2005; 1800 in 2006; 1235 in 2007; and 869 in 2008 (see table on page 10: Total Restatements by Year).
Source: AuditAnalytics.com
Audit Analytics is a premium on-line market intelligence service available from IVES Group Inc., a leading independent research provider focused on the accounting, insurance, regulatory, legal 21
and investment communities. For information, call (508) 476-7007, email info@auditanalytics.com or visit www.auditanalytics.com.
Restatement Issue Analysis - Debt, Quasi-Debt, Warrants & Equity (BCF) Security Issues
Restatement Issue Analysis Restatement Issue Analysis

Debt Related Accounting Issues Debt/Warrant/Equity as % of All Restatements
Debt/Equity restatements % of all restatements
489
27.17%
23.38% 22.83%
20.84%
324 282 17.24% 17.55% 20.02%
14.65%
144 168 174
120 120
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Debt, Quasi-Debt, Warrants & Equity (BCF) Security Issues
2001 2002 2003 2004 2005 2006 2007 2008
Debt Restatements 144 120 120 168 324 489 282 174
Total Restatements 616 696 819 957 1555 1800 1235 869
% of All Restatements 23.38% 17.24% 14.65% 17.55% 20.84% 27.17% 22.83% 20.02%
Notes
3) The % of All Restatements row are based on a total number of Restatements filed for the particular year (see also, table on page 10: Total
Restatements by Year).
4) D ebt, Quasi-Debt, Warrants & Equity ( BCF) Security Issues consists of errors or irregularities in approach, theory or calculation associated with
the recording of debt or equity accounts. These restatements will often be about errors made in the calculation of balances arising from debt, equity or
quasi debt/equity instruments with conversion options (including beneficial conversion features- BCF). For example when convertible debt is issued,
converted, repurchased or paid off, the GAAP requirements can be challenging. In addition, certain debt instruments can be erroneously valued. Often
FAS 123 (financial derivative) requirements are at issue.
22
Restatement Issue Analysis - Expense (Payroll, SGA, Other) Recording Issues

Expense (Payroll, SGA, Other) Recording Issues Expense Recording Issues as % of All Restatements
Expense (payroll, SGA other) recording issues % of all restatements
286 24.03% 23.99%

238
19.27%
18.44%
167 15.57% 15.89%
14.38%
148 151 149 145 125 9.32%
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Expense (Payroll, SGA, Other) Recording Issues
2001 2002 2003 2004 2005 2006 2007 2008
Expense Restatements 148 167 151 149 145 286 238 125
Notes
3) The % of All Restatements row are based on a total number of Restatements filed for the particular year (see also, table on page 10:
Total Restatements by Year).
4) E xpense (Payroll, SGA, Other) Recording Issues consists of errors or irregularities in approach, theory or calculation associated with the expensing
of assets or understatement of liabilities. These issues can arise from any number areas including failure to record certain expenses, reconcile certain
accounts or record certain payables on a timely basis. Also issues with payroll expenses or SG&A expenses are identified with this category.
23
Restatement Issue Analysis - Revenue Recognition Issues

Revenue Recognition Issues Revenue Recognition as % of All Restatements
Revenue Recognition Issues % of all restatements
226 20.76%
20.13% 20.06%
192 198 19.97%
170
166 14.53%
139 13.44%
124
96 11.00% 11.05%
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Revenue Recognition Issues
2001 2002 2003 2004 2005 2006 2007 2008
Revenue Restatements 124 139 170 192 226 198 166 96
Notes
4) R evenue Recognition Issues consists of errors or irregularities in approach, understanding or calculation associated with the recognition of revenue.
Many of these restatements originate from a failure to properly interpret sales contracts for hidden rebate, return, barter or resale clauses. Some of
them also relate to the treatment of sales returns, credits and other allowances.
24
Restatement Issue Analysis - Deferred Stock-Based and/or Executive Compensation Issues

Deferred, Stock-Based and/or Executive Comp. Issues Deferred Comp as % of all restatements
Deferred, Stock-Based and/or Executive Comp. Issues % of all restatements
324
18.00%
14.61% 13.31%
12.93% 14.33% 12.89%
12.33% 12.35%
192 177
109 118 112
90 90
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Deferred Stock-Based and/or Executive Compensation Issues
2001 2002 2003 2004 2005 2006 2007 2008
Deferred Comp. Issues 90 90 109 118 192 324 177 112
Notes
4) D eferred Stock-Based and/or Executive Compensation Issues consists of errors or irregularities in approach, theory or calculation associated with
the recording of deferred, stock based or executive compensation. The majority of these errors are associated with the valuation of options or similar
derivative securities or rights granted to key executives. This category can also include restatements associated with the new FASB dealing with
expensing of certain employee options as compensation expense in financial statements. A sub-category (FAS 123) has been created to capture only
these issues.
25
Restatement Issue Analysis - Liabilities, Payables, Reserves and Accrual Estimate Failures

Liabilities/ Payables/Reserves /Acural Estimate Failures Liabilities/ Payables/Reserves as % of All Restatements
Liabilities, payables, reserves and accrual estimate failures % of all restatements
220 235
16.61%
13.65% 13.80% 14.15% 13.93%
159 172 13.06% 9.78%
10.39%
113
95 85
64
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Liabilities, Payables, Reserves and Accrual Estimate Failures
2001 2002 2003 2004 2005 2006 2007 2008
Liabilities Restatements 64 95 113 159 220 235 172 85
Notes
4) Liabilities,
Payables, Reserves and Accrual Estimate Failures consists of errors, irregularities or omissions associated with the accrual or
identification of liabilities on the balance sheet. These could range from failures to record pension obligations, to problems with establishing the
correct amount of liabilities for leases, capital leases and other. This category could also include failures to record deferred revenue obligations
or normal accruals.
26
Restatement Issue Analysis - Acquisitions, Mergers, Disposals, Re-Organization Accounting Issues

Acquisitions/Mergers/Disposals/Re-Org. Acct. Issues Acquisitions/Mergers as % of all restatements
Acquisitions, mergers, disposals, re-org acct issues % of all restatements
269
241 20.62%
17.76%
15.75% 15.50%
170 168 14.37% 14.94% 13.60% 11.97%
127 129
100 104
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Acquisitions, Mergers, Disposals, Re-Organization Acct. Issues
2001 2002 2003 2004 2005 2006 2007 2008
Acquisitions Restatements 127 100 129 170 241 269 168 104
Notes
4) A cquisitions, Mergers, Disposals, Re-Organization Accounting Issues consists primarily of errors or irregularities in approach, theory or
calculation associated with mergers, acquisitions, disposals, reorganizations or discontinued operation accounting issues. The restatements in this
area can be varied but they all deal with a company’s failure to properly record an acquisition (such as valuation issues) or a failure to properly record
a disposal (such as discontinued operations) or reorganization (such as in bankruptcy). It can also include failures to properly revalue assets and
liabilities associated with fresh start rules.
27
Restatement Issue Analysis - Cash Flow Statement (SFAS 95) Classification Errors

Cash Flow Statement (SFAS 95) Classification Errors Cash Flow as a % of all restatements
Cash flow statement (SFAS 95) classification errors % of all restatements
195
150 12.15% 13.12%
132 10.83%
114 8.49%
19 4.60%
14 44
3 0.49% 2.01% 2.32%
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Cash Flow Statement (SFAS 95) Classification Errors
2001 2002 2003 2004 2005 2006 2007 2008
Cash Flow Restatements 3 14 19 44 132 195 150 114
Notes
4) C ash Flow Statement Issues consists of errors or irregularities in approach, theory or calculation that manifested themselves in cash flow
statements (FAS 95) that are not consistent with GAAP. These misclassifications can affect cash flow from operations, financing, non-cash and
other investments.
28
Restatement Issue Analysis - Tax Expense/Benefit/Deferral/Other (FAS 109) Issues

Tax/Expense/Benefit/Deferral/Other (FAS 109) Issues Tax/Expense/Benefit/Deferral as % of All Restatements
Tax/expense/benefit/deferral/other (FAS 109) issues Tax/Expense/Benefit/Deferral as % of All Restatements
176
12.54% 12.15%
128 11.11%
189 10.36% 10.47%
9.78%
91
7.18%
6.33%
50 91 120
39
2001 2002 2003 2004 2005 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 2008
Tax Expense/Benefit/Deferral/Other (FAS 109) Issues
2001 2002 2003 2004 2005 2006 2007 2008
Tax/Expense Restatements 39 50 91 120 189 176 128 91
Notes
4) T ax Expense/Benefit/Deferral/Other (FAS 109) Issues consists of errors or irregularities in approach, understanding or calculation associated with
various forms of tax obligations or benefits. Many of these restatements relate to foreign tax, specialty taxes or tax planning issues. Some deal with
failures to identify appropriate differences between tax and book adjustments.
29
Financial Restatement issues - Definitions
Accounts/ Loans Receivable, Investments & Cash Issues

Consists of errors or irregularities in approach, theory or calculations with respect to cash, accounts receivable, loans
collectible, investments, allowance for uncollectibles, notes receivables and/or related reserves. These mistakes often
manifest themselves in balance sheet and income statement errors or misclassifications. Based on GAAP rules, changes
in estimates, such as allowances for bad debts, should not be reflected as a restatement but should be recorded in the
period in which such change is identified.
Acquisitions, Mergers, Disposal, Reorganization Accounting Issues

Consists primarily of errors or irregularities in approach, theory or calculation associated with mergers, acquisitions,
disposals, reorganizations or discontinued operation accounting issues. The restatements in this area can be varied but
they all deal with a company’s failure to properly record an acquisition (such as valuation issues) or a failure to properly
record a disposal (such as discontinued operations) or reorganization (such as in bankruptcy). It can also include failures
to properly revalue assets and liabilities associated with fresh start rules.
Balance Sheet Classification of Assets Issues

Consists of errors or irregularities in approach, theory or calculation associated with how assets were classified on the
balance sheet. This can include how assets were classified as short term/long term, how they were described or whether
they should have been netted against some other liability.
Capitalization of Expenditures Issues

Consists of errors or irregularities in approach, theory or calculation associated with the capitalization of expenditures.
These can include expenditures capitalized related to leases, inventory, construction, intangible assets, R&D, product
development and other purposes.
Cash Flow Statement (FAS 95) Classification Errors Issues

Consists of errors or irregularities in approach, theory or calculation that manifested themselves in cash flow statements
that are not consistent with GAAP. These misclassifications can affect cash flow from operations, financing, non-cash and
other investments. (FAS 95 classification errors)
Comprehensive Income Issues

Made up of errors or irregularities related to misstatements of comprehensive income or accumulated income. These most
commonly would include misstatements of pensions, foreign currency or derivatives.
Consolidation Issues, Including Fin 46 Variable Interest & Off-Balance Sheet

Consists of errors or irregularities in approach, theory or calculation with respect to the consolidation of subsidiaries
including variable interest entities and off balance sheet arrangements. This can include mistakes in how joint ventures,
off balance sheet entities or minority interests are recorded or manifested. It can also include issues associated with
foreign currency translations of foreign affiliates.
Debt and/or Equity Classification Issues

Consists mainly of errors or irregularities in approach, theory or calculation associated with the proper classification
of a debt instrument as short term or long term. Issues associated with determining the correct treatment can require
an in depth understanding of the contractual nature of the debt instruments. These errors can also include differences
misclassifications between debt and equity accounts.
30
Financial Restatement issues - Definitions (continued)
Debt, Quasi-debt, Warrants, Equity (BCF) Issues

Consists of errors or irregularities in approach, theory or calculation associated with the recording of debt or equity
accounts. These restatements will often be about errors made in the calculation of balances arising from debt, equity or
quasi debt/equity instruments with conversion options (including beneficial conversion features- BCF). For example when
convertible debt is issued, converted, repurchased or paid off, the GAAP requirements can be challenging. In addition,
certain debt instruments can be erroneously valued. Often FAS 123 (financial derivative) requirements are at issue.
Deferred, Stock-Based or Executive Compensation Issues

Consists of errors or irregularities in approach, theory or calculation associated with the recording of deferred, stock based
or executive compensation. The majority of these errors are associated with the valuation of options or similar derivative
securities or rights granted to key executives. This category can also include restatements associated with the new FASB
dealing with expensing of certain employee options as compensation expense in financial statements. A sub-category
(FAS 123) has been created to capture only these issues.
Depreciation, Depletion or Amortization Errors

Consists of errors or irregularities in approach, theory or calculation associated with depreciation of assets, amortization
of assets and/or amortization of debt premiums or discounts. A significant number of these items can be attributed to
the recalculation of depreciation associated with revised leasehold improvements associated with the revised lease
accounting rules.
EPS, Ratio and Classification of Income Statement Issues

Consists primarily of errors, omissions or irregularities associated with a registrant’s disclosure of financial/operational
ratios or margins and earnings per share calculation issues. Also included are circumstances where income statement
items are misclassified, often between CGS and SGA.
Expense (Payroll, SGA, Other) Recording Issues

Consists of errors or irregularities in approach, theory or calculation associated with the expensing of assets or
understatement of liabilities. These issues can arise from any number areas including failure to record certain expenses,
reconcile certain accounts or record certain payables on a timely basis. Also issues with payroll expenses or SG&A
expenses are identified with this category.
Financial Derivatives, Hedging (FAS 133) Accounting Issues

Consists of errors or irregularities in approach, theory or calculation of derivative instruments. These can include the
valuation of financial instruments such as hedges on currency swings, interest rate swaps, purchases of foreign goods,
guarantees on future sales and many other examples.
Foreign Related Party, Affiliated, or Subsidiary Issues

Consists primarily of errors, omissions or irregularities associated with disclosures about related, alliance, affiliated and/or
subsidiary entities.
Gain or Loss Recognition Issues

Consists of errors or irregularities in approach, theory or calculation with respect to the recording of gains or losses from
the sales of assets, interests, entities or liabilities. Mistakes in these areas often result from problems with calculating the
appropriate basis for items that were sold or the proper sales amount when such amounts are of the nature of barters.
31
Financial Restatement issues - Definitions (continued)
Intercompany, Investment in Subsidiary/Affiliate Issues

Consists primarily of errors or irregularities in approach, theory or calculation related to intercompany or affiliate balances,
investment valuations or transactions. It is often the case that problems arise when intercompany balances are not
recognized or that income figures are manipulated at the affiliate (foreign or US) levels.
Inventory, Vendor, Cost of Sales Issues

Consists of errors or irregularities in approach, theory or calculation associated with transactions affecting inventory,
vendor relationships (including rebates) and/or cost of sales. Such errors primarily are related to the capitalization of
activities in inventory or the calculation of balances at year end.
Lease, Legal, FAS 5 Contingency and Commitment Issues

Consists primarily of errors, omissions or irregularities associated with FAS 5 type contingencies and commitments. This
description also deals with issues associated with the disclosure or accrual of legal exposures by registrants and issues
associated with incorrectly identifying historical contractual lease terms. These terms can include treatment of “rent
holidays”, tenant allowances and other such items.
Liabilities, Payables, Reserves and Accrual Failures

Consists of errors, irregularities or omissions associated with the accrual or identification of liabilities on the balance
sheet. These could range from failures to record pension obligations, to problems with establishing the correct amount
of liabilities for leases, capital leases and other. These categories could also include failures to record deferred revenue
obligations or normal accruals.
Pension Issues
Includes liability and other issues related to pensions.
PPE, Intangible, Fixed Asset Issues

Consists of identifiable errors or irregularities either in calculation, approach or theory that have taken place in the
recording of assets, goodwill, intangible or contra liabilities that are required to be valued or assessed for diminution in
value on a periodic basis. Examples include: intangible assets, goodwill, buildings, securities, investments, lease-hold
improvements, etc. This description also covers misreporting of fixed assets.
Revenue Recognition Issues

Consists of errors or irregularities in approach, understanding or calculation associated with the recognition of revenue.
Many of these restatements originate from a failure to properly interpret sales contracts for hidden rebate, return, barter or
resale clauses. Some of them also relate to the treatment of sales returns, credits and other allowances.
Tax Expense/Benefit/Deferral/Other (FAS 109) Issues

Consists of errors or irregularities in approach, understanding or calculation associated with various forms of tax
obligations or benefits. Many of these restatements relate to foreign tax, specialty taxes or tax planning issues. Some
deal with failures to identify appropriate differences between tax and book adjustments.
32
Audit Analytics® - Public Company Intelligence
Audit Analytics® is the premier public company intelligence service providing independent research to the investment,
accounting, insurance, legal, regulatory and academic communities
Audit Analytics® provides intelligence research on over 20,000 public companies and 1,500 accounting firms. Our data
includes detailed categorizations of issues and is considered by many professionals to be the best primary data source for
tracking and analysis of the following public company disclosures:
• Sarbanes-Oxley Disclosures
Track Section 404 internal control disclosures and Section 302 disclosure controls.
• Auditor Information
Know who is auditing whom, their fees, auditor changes, auditor opinions and more.
• Financial Restatements
Identify financial restatements by type, auditor and peer group. Analyze by date, period and specific issue.
• Litigation & Legal Disclosures

Search all federal litigation by auditor, company and litigation type. Know who is representing whom.
• Corporate Governance
Track director & officer changes, audit committee members, C-level executives and their biographies.
Detailed reports are easily created by issue, company, industry, auditor, fees and more and are downloadable into
Excel. Daily notifications via email are available for auditor changes, restatements and director & officer changes.
Access to Audit Analytics® is available via on-line user subscription, enterprise data-feeds, daily email notifications and
custom research reports.
Contacting Audit Analytics®
For more information on subscriptions, data feeds, XML APIs

or to schedule an on-line demonstration, please contact:
Audit Analytics® Sales

(508) 476-7007
Info@AuditAnalytics.com
33

Audit Analytics 2008 Restatement RPT

Caricato da

Informazioni sul documento

Descrizione originale:

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Audit Analytics 2008 Restatement RPT

Caricato da

Copyright:

Formati disponibili

February 2009

2008 Financial Restatements

Mark Cheffers, CPA, CEO

Don Whalen, Esq., Research Director

Olga Usvyatsky, Research Analyst

Total Restatements per Year (Graph and Table) 10

Total Annual Restatements Only per Year (Graph and Table) 11

Yearly Percentage of Quarterly vs. Annual Restatements (Graph and Table) 12

Largest Negative Restatements by Year (Graph and Table) 13

Restatements Breakdown by Market (Table) 14

Cumulative Impact on Net Income of Publicly Traded Companies (Table) 14

Restatements with No Impact on Income Statements (Table) 15

Average Restatement Period per Year (Graph and Table) 16

Average Number of Issues Per Restatement (Graph and Table) 17

Restating Registrants by Accelerated Filer Status (Graph and Table) 18

Average Number of Days to Restate (Graph and Table) 19

Stealth Restatements (Graph and Table) 20

Restatement Issue Breakdown by Year (Table) 21

Expense (Payroll, SGA, Other) Recording Issues (Graph and Table) 23

Revenue Recognition Issues (Graph and Table) 24

Deferred Stock-Based and/or Executive Compensation Issues (Graph and Table) 25

Acquisitions, Mergers, Disposals, Re-Organization Accounting Issues (Graph and Table) 27

Tax Expense/Benefit/Deferral/Other (FAS 109) Issues (Graph and Table) 29

Definitions for Restatement Issues 30

Overview: Audit Analytics® 33

in the recent years was too

the percentage of stealth minor errors that would not have

of all restatements. process of restating is costly

Executive Summary - Financial Restatements 2001 to 2008

Total Restatements by Year

2001 2002 2003 2004 2005 2006 2007 2008

Executive Summary - Financial Restatements 2001 to 2008 (continued)

a. Negative Impact on Net Income

b. Negative Impact on Net Income

Executive Summary - Financial Restatements 2001 to 2008 (continued)

c. No Impact on Income Statements

d. Average Number of Days Restated

e. Average Number of Issues per Restatement

Executive Summary - Financial Restatements 2001 to 2008 (continued)

Number of Days to Restate

2002 2003 2004 2005 2006 2007 2008

Executive Summary - Financial Restatements 2001 to 2008 (continued)

In response to Section 409 of the Sarbanes-Oxley Act of

A stealth restatement, as defined in this analysis, is any

Executive Summary - Financial Restatements 2001 to 2008 (continued)

Executive Summary - Financial Restatements 2001 to 2008 (continued)

issues; 14.00% 13.12%

• revenue recognition issues; 10.00%

Frequency of Issue Occurence in Restatments

20.00% Deferred, stock-based and/or

15.00% Acquisition, mergers, disposals,

10.00% Tax expense/benefit/deferral/

Cash flow statement (SFAS95)

Revenue recogntion issues

Restatement Analysis - Total Restatements per Year

Total Restatements by Year

2001 2002 2003 2004 2005 2006 2007 2008

Total Restatements by Year

Unique Filers Restatements Growth Rate

2001 579 616

Restatement Analysis - Total Annual Restatements Only per Year

Total Annual Restatements Only

a. Negative Impact on Net Income

b. Negative Impact on Net Income

c. No Impact on Income Statements

e. Average Number of Issues per Restatement

In response to Section 409 of the Sarbanes-Oxley Act of

A stealth restatement, as defined in this analysis, is any