How likely is it that companies reporting material weaknesses will restate their financial statements due to accounting errors?
Restatements for accounting errors occur when material errors existing in financial statements are not detected by either internal controls or external auditors prior to the issuance of the financial statements. Internal control plays an important role in preventing material errors (and restatements) from occurring. Glass Lewis & Co. (“The Errors of Their Ways,” Yellow Card Trend Alert, February 27, 2007) reported that, of a total of 1,420 restatements made by U.S. companies in 2006, 685 also disclosed material weakness within one year (either before or after) of restatement. Of those 685 companies the material weakness was disclosed as follows: • 277 before the restatement; • 297 after the restatement; • 111 both before and after restatement. The reported data are consistent with the “Special Comment” by Moody’s Investors Service (“The Second Year of Section 404 Reporting on Internal Control,” May 2006), which concluded that material weakness reports are often lagging indicators of fi
Related Questions
- Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entitys financial statements?
- How likely is it that companies reporting material weaknesses will restate their financial statements due to accounting errors?
- How many companies disclose material weaknesses in internal control?
