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Financial Restatements Hit Six-Year Low By Tatyana Shumsky Jun 7, 2017

The head office and logo of Valeant Pharmaceuticals International Inc. in Laval, Quebec, Canada. The drug maker was one of several companies to restate its financials during 2016. The head office and logo of Valeant Pharmaceuticals International Inc. in Laval, Quebec, Canada. The drug maker was one of several companies to restate its financials during 2016. PHOTO: AP The share of U.S. companies restating their results hit a six-year low in 2016, a sign that finance chiefs have strengthened their oversight of financial reporting in recent years. Just 671 public companies disclosed they would need to reissue or revise their financial filings last year, or 6.8% of the 9,831 companies, according to an upcoming annual study by Audit Analytics. That’s the lowest number of restatements in fifteen years and the lowest share since 2010, when 6.7% of companies disclosed they would need to restate financials. That year 847 out of 12,713 listed companies told investors a restatement was needed. Tighter regulation and a decline in the number of U.S. listed companies are the two key drivers. Finance chiefs have stepped up their controls over financial reporting to comply with the Sarbanes-Oxley Act of 2002. The law requires public companies to have an external auditor review the systems and processes they have in place to prevent financial fraud. “Any improvement in internal controls over financial reporting is going to reduce the likelihood of a financial restatement,” said Don Whalen, director of research at Audit Analytics. “And even if [a weakness] does happen, it’s going to be found more quickly and have less impact,” he added. At the same time, the number of U.S. listed companies has dropped 37% over the past decade. Startups are staying in private hands for longer because private equity and venture capital firms are flush with cash, meaning they can avoid public markets. Meanwhile, a boom of merger and acquisition activity has thinned the ranks of listed companies. With fewer companies reporting to the Securities and Exchange Commission, the number of of mistakes also declines. As a result, the number of restatements notched last year, at 671, was the lowest in a decade, but the rate was a six-year low. Larger companies have been more successful at avoiding reissuance restatements, which require them to re-file their financial reports with the SEC. Just 51 accelerated filers — companies with a public stock ownership of $700 million or more that have earlier deadlines for submitting their financials to the agency — disclosed reissuance restatements last year. This was the smallest number in the past seven years and accounted for 1.5% of the 3,334 companies that qualified as accelerated filers in 2016.