auditanalytics0517

2010 Financial Restatements A Ten Year Comparison

Mark Cheffers, CPA, ABV, CEO mcheffers@ivesinc.com 508.476.7007 x223

Don Whalen, Esq., Director of Research dwhalen@ivesinc.com 508.476.7007 x222

Olga Usvyatsky, CPA, Research Analyst ousvyatsky@ivesinc.com 508.476.7007 x248

May 2011

Audit Analytics Briefing Index 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)

14

Average Restatement Period per Year (Graph and Table)

15

Average Number of Issues Per Restatement (Graph and Table)

16

Restating Registrants by Accelerated Filer Status (Graph and Table)

17

Average Number of Days to Restate (Graph and Table)

18

Revision Restatements (Graph and Table)

19

Restatement Issue Breakdown by Year (Table)

20

Debt, Quasi-Debt, Warrants & Equity (BCF) Security Issues (Graph and Table)

21

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

22

Liabilities, Payables, Reserves and Accrual Estimate Failures (Graph and Table)

23

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

24

Revenue Recognition Issues (Graph and Table)

25

Accounts/Loans Receivable, Investment & Cash Issues (Graph and Table)

26

Cash Flow Statement (SFAS 95) Classification Errors (Graph and Table)

27

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

28

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

29

Definitions for Restatement Issues

30

Overview: Audit Analytics速

33

2010 Financial Restatements: A Ten Year Comparison Introduction The quantity of restatement and nonreliance disclosures peaked in 2006 with 1795 disclosures. Each of the three years thereafter experienced a decline in the number of disclosures with 683 restatements in 2009. After three years of decline, financial restatements experienced an uptick in quantity in 2010, largely due to nonaccelerated filers, but the severity remained low.

in the restatements. The average number of issues implicated in a restatement dropped to 1.48 issues per restatement, the lowest during the ten years under review. The average number of days that were corrected by a financial adjustment (the restatement period) also decreased.

This number peaked in 2005 with a value of 744 days and decreased every year thereafter to a value of 491 average days in 2010. Another indication of severity of the restatements is amount of Revision Restatements in the After three years of decline, financial population. The SEC requires restatements experienced an uptick registrants that file Form 10-Ks to disclose a determination that past in quantity in 2010, largely due to financial statements should no non-accelerated filers, but the severity longer be relied upon. This new set of disclosure requirements became of these restatements remained low. effective on August 23, 2004 and the disclosure is to appear in Item In 2010, the number of restatements 4.02 of an 8-K. A Revision Restatement disclosed by accelerated filers decreased. is defined as a restatement contained in The restatements from foreign, accelerated a periodic report without a prior disclosure filers dropped from 14 in 2009 to 12 in in Item 4.02. Therefore, a Revision 2010. Likewise, restatements from U.S., Restatement is a restatement, presumably, accelerated filers dropped from 142 to 136. that did not undermine reliance on past These declines, however, were surpassed financials. Such restatements would be by the increase in the quantity of discloses less disruptive to the market. In 2010, filed by non-accelerated filers. The Revision Restatements were 52.85% of restatements from foreign, non-accelerated the restatement disclosures. This figure filers increased from 99 to 127 and those contributed to the drop in the average from U.S., non-accelerated filers increased number of days a company needed to from 385 to 424. investigate and calculate a restatement.

The average number of days a publicly Although there was an increase in traded company needed dropped disclosures in 2010, the severity of these dramatically in 2010, to approximately restatements was comparable or lower five days. than the prior years. When reviewing the adverse effect of the restatements filed in All these factors appear to be a positive 2010, Audit Analytics found an equivalence manifestation of improved internal controls or reduction in severity in every criteria over financial reporting (ICFRs) adopted quantified: (1) the negative impact on pursuant to the Sarbanes Oxley Act of net income, (2) the average cumulative 2002. The improved ICFRs not only impact on net income per restatement, increased the accuracy and reliability (3) the percentage of restatements with of more corporate financial disclosures, no impact on income statements, (4) the but gave companies the tools needed to average number of days restated, and (5) quickly identify and correct accounting the average number of issues identified errors when they nevertheless arose.

Total Restatements by Year Unique Filers Restatements 1566

1795 1094

1215 825

2006

2007

920

2008

640 683

699 735

2009

2010

Average Issues Per Restatement Average Number of Issues per Restatement

2.01

1.90

1.67

1.52

1.48

2006

2007

2008

2009

2010

Average Restatement Period per Year Average Number of Days Restated

717

644

510

496

491

2006

2007

2008

2009

2010

Revision Restatements Percentage Revision 42.59%

2005 2006

50.00% 41.74%

2006 2007

46.61%

2007

2008

2009

52.85%

2008 2010

1

2010 Financial Restatements: A Ten Year Comparison Database Overview The Audit Analytics financial restatement database contains a depth and breadth of data not found elsewhere in the financial information marketplace. It includes data from more than 10,000 financial restatements and/or non-reliance filings disclosed by over 7,000 SEC public registrants 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 (e.g., Cash Flow Statement (FAS 95), Tax (FAS 109), Revenue Recognition, Intangible Assets, etc.). Search results from this level of granularity can be filtered by 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 control reports and other data populations.

This content extension further allows the analyst to identify anomalies and market patterns that would not be readily apparent without performing this layered approach. The analysis included in this Executive Summary is high level, but nevertheless, only touches on the extent to which this data can be analyzed.

Methodology This 2010 Restatement Briefing Paper was compiled from data searched, categorized, and extracted from the www.AuditAnalytics.com database. Our restatement database covers all filer types: accelerated filers (“AF”), non-accelerated filers, funds and trusts, new company registrations, small business filers and foreign registrants.

Restatement records are originated from one of two sources: 8-Ks or periodic reports (10-Ks, 10-K/As, 10-Qs, 10-KSB, 40F, 20F, etc.). Our methodology is designed to create a timeline of the restatement’s history. The timeline frequently begins with a press release or Item 4.02 disclosure in an 8-K. 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 disclosing a revenue recognition problem and the restatement issued in the subsequent 10-K/A provides adjustments for an additional issue (e.g., an adjustment in cash flow in addition to revenue recognition), a separate and distinct restatement is created to track that newly disclosed issue (the cash flow statement (FAS 95) issue). 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.

Since some restatements are first disclosed in a periodic report with no prior Item 4.02 disclosure, our analyst review all periodic reports to discover these type of restatements (Revision Restatements).

Population As noted above, the Audit Analytics restatement database contains more than 10,000 financial restatements and/or nonreliance filings disclosed by over 7,000 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 includes 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 exists 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 orphaned 8-Ks

2

2010 Financial Restatements: A Ten Year Comparison Population (continued) and 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.

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 2010

1. Calendar Year 2010 has Experience the First Uptick in Restatement Disclosures since 2006.

In 2007, restatements declined by 32.3% (from 1,795 to 1,215). (See graph on right and table on page 10: Total Restatements by Year.) In 2008, restatements declined another 24.3% (from 1,215 to 920). This trend continued in 2009 with a 25.8% drop (920 down to 683). After three years of decline, the number of total restatement disclosures experienced an uptick. In 2010, restatements increased by 7.6% (from 683 to 735). Although more companies disclose restatements in 2010, as explained below, these restatements did not reflect an increase in severity compared to those disclosed in the recent past.

Total Restatements by Year Unique Filers Restatements

1402

1550

1566

1795

1094 577 613

645 698

2001

2002

755 814

2003

866

1215

945

2004

825

2005

2006

2007

920

2008

640

683

2009

699 735

2010

3

2010 Financial Restatements: A Ten Year Comparison Executive Summary - Financial Restatements 2001 to 2010 (continued) 2. Despite the Uptick in the Quantity of Restatements, Calendar Year 2010 Experienced an Equivalence or Drop in the Severity of Restatements as Compared to Prior Years a. Negative Impact on Net Income When looking at net income, Largest Negative Restatements both 2004 and 2005 experienced (U.S. $ in Millions) restatements that resulted in very large negative adjustments.1 The Largest Negative Restatements largest adjustment in 2006 was smaller, but nevertheless substantial. $7,000 $6,355 In 2004, Federal National Mortgage Assoc. (Fannie Mae) restated its net $6,000 income to reflect a negative 6.335 $5,193 billion dollar impact while, in 2005, $5,000 $4,513 American International Group Inc. (AIG) disclosed a negative 5.193 $4,000 billion dollar impact. (See graph on right and table on page 13: Largest $3,465 $3,000 Negative Restatements by Year.) $2,377 In 2006, Navistar International $2,000 Corporation disclosed a negative 2.377 billion dollar impact. In $717 $671 $1,000 contrast, the adjustments of the $341 $357 last four years were much lower $0 than the past. General Electric’s 2003 2005 2006 2007 2008 2009 2010 2002 2004 negative adjustment of 341 million dollars was the largest in 2007 and TMST’s negative 671 million dollar adjustment was the largest in 2008. Calendar year 2009 experienced a dollar figure close to that occurring in 2007, with USB AG’s negative adjustment of 357 Average Income Adjustment million dollars representing the largest for the year. The 2010 adjustment of 717 Per Restatement million dollars by Telecom Italia represented the highest for the year.

(Companies Presently on Amex, NASDAQ, and NYSE)

2006 -$25,596,558 b. A verage Cumulative Impact on Net Income per Restatement One gauge of the severity of restatements can be attained by calculating 2007 -$9,086,753 the impact an average restatement had on the net income of companies 2008 -$6,888,579 presently traded on one of the three major American stock exchanges 2009 -$4,594,436 (Amex, NASDAQ, and NYSE). The typical restatement in 2006 had a negative adjustment of over 25 million dollars. (See table on right and table on page 14: 2010 -$5,934,222 Cumulative Impact on Net Income of Publicly Traded Companies (on Amex, NASDAQ, or NYSE).) This dollar figure dropped substantially in 2007, when the average restatement had a negative impact of approximately 9 million dollars. As shown on the right, the figure dropped in 2008 and again in 2009. Calendar year 2010 experienced an average negative impact of 5.9 million dollars, which represents an increase from the prior year, but nevertheless the second lowest since 2002.

1

This analysis is limited to those companies presently traded on one of the three major American stock exchanges (Amex, NASDAQ, and NYSE).

4

2010 Financial Restatements: A Ten Year Comparison Executive Summary - Financial Restatements 2001 to 2010 (continued) c. No Impact on Income Statements

Another indicator of the severity of restatements in a particular year is the percent of restatements that had no impact on the income statement. Audit Analytics performed such a review for those companies presently trading on one of the three major American stock exchanges (Amex, NASDAQ, and NYSE).

During 2010, approximately 39.8% of the restatements disclosed had no impact on earnings, a total of 95 out of 239 restatements.

(See tables on page 14: Restatements with No Impact on Income Statement (companies on Amex, NASDAQ, and NYSE).)

This percentage is the highest since 2002 and indicates a low severity as compared to the prior 8 years. d. Average Number of Days Restated As shown in the graph on the right, the number of days that were restated (the restatement period) of the average restatement in a given year peaked in 2005. (See also, table on page 15: Average Restatement Period per Year.) In 2005, the average restatement period was 744 days, followed by five consecutive years of decline: 717 days in 2006; 644 days in 2007; 510 days in 2008; 496 days in 2009; and 491 days in 2010.

Therefore, when compared to the prior eight calendar years, the average restatement in 2010 did not have to look back as far into the past in order to correct previous financial statements. e. Average

Number of Issues per Restatement Audit Analytics developed a taxonomy composed of over 40 issues that are identified in restatement disclosures as a cause for financial adjustments. In addition to identifying the number of restatements filed over the past ten years, Audit Analytics reviewed each restatement for the accounting issues implicated. A review of these issues since 2001 shows that calendar year 2010 has experienced the lowest average number of issues per restatement. (See graph on right and page 16: Average Number of Issues per Restatement.) In 2005, the average number of issues peaked at 2.44 issues per restatement.

In 2010, the average restatement implicated only 1.48 financial accounting issues.

Percentage of Restatements with No Impact on Income Statement (Companies Presently on the Amex, NASDAQ or NYSE) 2006

28.89%

2007

33.60%

2008

34.68%

2009

31.39%

2010

39.75%

Average Restatement Period Per Year Average Number of Days Restated

464

2001

539

573

2002 2003

619

744

2004 2005

717

2006

644

510

496

491

2007 2008

2009

2010

Average Issues Per Restatement Average Number of Issues Per Restatement

2.00

2001

2.11

2.14

2002 2003

2.20

2.44

2004 2005

2.01

2006

1.90

1.67

1.52

1.48

2007 2008

2009

2010

5

2010 Financial Restatements: A Ten Year Comparison Executive Summary - Financial Restatements 2001 to 2010 (continued) 3. A Restatement Population Breakdown Based on Size (Accelerated Filer Status) and Location (U.S. or Foreign) Showed that this Year’s Uptick is Attributable to Non-Accelerated Filers, Both U.S. and Foreign.

The restatement filer population can be separated into four categories based on Restating Registrant by Accelerated Filer Status size and location: (1) accelerated foreign filer, (2) non-accelerated foreign filer, US Accelerated filers 887 (3) accelerated U.S. filer, and (4) nonUS Non-Accelerated filers accelerated U.S. filer. A review of these 702 categories showed that the total number 630 of restatements from U.S. and foreign 513 accelerated filers decreased slightly 478 472 471 448 424 while the number from both categories 385 of non-accelerated filers increased. (See 303 282 table on page 17: Restating Registrant 212 181 142 136

by Accelerated Filer Status.) As shown on the graph, U.S. accelerated filers disclosed 142 restatements in 2009 and 2003 2004 2005 2006 2007 2008 2009 2010 136 in 2010. This slight decrease was overtaken by the increase disclosed

by U.S. non-accelerated files: 385 in 2009 and 424 in 2010. A similar breakdown occurred with foreign filers, with disclosures from accelerated filers decreasing from 14 to 12 and disclosures from non-accelerated filers increasing from 99 to 127. Therefore the uptick in restatements in 2010 is attributable to non-accelerated filers.

4. A Review of Companies Presently Trading on One of the Three Major U.S. Exchanges Showed that the Number of Days Needed to File a Restatement Decreased Markedly.

Audit Analytics performed a review of companies that presently trade on one of the three major American stock exchanges (Amex, NASDAQ, and NYSE).

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 was about 66 days. In 2010, the average duration required to restate was only about 5 days.

Number of Days to Restate Average Number of Days to File Restatement

65.60

28.81

24.98

29.94

35.46

58.71 28.95

19.28 The smaller time periods could be caused 16.80 4.95 by a number of factors. In general, the number of days needed to restate is 2002 2003 2004 2005 2006 2007 2008 2009 2010 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 2010. In addition, the percentage of Revision Restatements (those without a prior 8-K, Item 4.02 disclosure) represented almost half the restatements filed. An increase in the percentage of Revision Restatements 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 6 the restatement at hand.

2010 Financial Restatements: A Ten Year Comparison Executive Summary - Financial Restatements 2001 to 2010 (continued) 5. Calendar Year 2010 Experienced the Highest Percentage of Revision Restatements During the Last 6 Years.

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 an 8-K. This new set of disclosure requirements became effective on August 23, 2004. One of the new reportable 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, titled Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. Therefore, in most occurrences, the first disclosure of a past unreliable financial statement should appear in the Item 4.02 of an 8-K filed with four business days of the conclusion.2 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 an amended periodic report.3 A restatement that corrected a clerical error, or restated cash flow, could be produced quickly, but those requiring an investigation should be preceded by an Item 4.02 disclosure if prior financial statements can no longer be relied upon.4 In this report, a Revision Restatement is defined as any restatement revealed in a periodic report without a prior disclosure in Item 4.02 of an 8-K.5 As shown in the graphs above, a review of the number of Revision Restatement from year to year provides a different perspective than a review of the percentage of such restatements compared to all restatements from 10-K filers. For example, 2008 experienced a drop in the number of Revision Restatements, but an increase in percentage. Calendar year 2010, experienced an increase in both number and percentage compared to the prior year and the value of 52.85% (310 out of 685) represents the highest percentage since 2005. (See table on page 19: Revision Restatements.)

2

3

4

5

Revision Restatements Restatements without Form 8-K, Item 4.02 693 459

452

430 296

2005

2006

2007

2008

2009

362

2010

Revision Restatements Percentage Revision 50.00% 42.59%

41.74%

2006

2007

46.61%

52.85%

33.21%

2005

2008

2009

2010

P ursuant to SEC Release 33-8400 the registrants that must provide a disclosure are those “subject to the reporting requirements of Section 13(a) and Section 15(d) of the Exchange Act, other than foreign private issuers that file annual reports on Form 20-F or 40-F” (see http://www. sec.gov/rules/final/33-8400.htm). Therefore restatements filed by foreign filers are not defined as stealth restatements in this report.

S ee Louise M. Dorsey, Speech by SEC Staff: Remarks Before the 2006 AICPA National Conference on Current SEC and PCAOB 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.

S ince a disclosure in Item 4.02 is required when it is determined that a past financial can no longer be relied upon, a restatement that provides an immaterial adjustment to the financials need not be preceded by a 4.02 because the adjustment does not undermine prior reliance.

F or 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.

7

2010 Financial Restatements: A Ten Year Comparison Executive Summary - Financial Restatements 2001 to 2010 (continued) 6. A Review of the Top Ten Issues in 2010 Reveals a Marked Increase in Restatements that Implicated Debt, Quasi-Debt, Warrants and Equity Issues.

In 2010, the top ten accounting issues implicated in restatements were as follows:

• debt, quasi-debt, warrants & equity ( BCF) security issues; • expense (payroll, SGA, other) recording issues; • liabilities, payables, reserves and accrual estimate failures; • deferred, stock-based and/or executive compensation issues; • revenue recognition issues; • accounts/loans receivable, investments & cash issues; • cash flow statement (SFAS 95); • acquisitions, mergers, disposals, reorganization accounting issues; • tax expense, benefit, deferral and other (FAS 109) issues; and • foreign, related party, affiliated, or subsidiary issues.

(See table on page 20: Restatement Issue Breakdown by Year.) A timeline of the occurrence rate of the top seven issues is shown below.

Frequency of Issue Occurrence in Restatements Historical Percentage of Top Seven Issues in 2008

Percent of Restatements Citing Issue

30.00%

25.00% Debt, quasi-debt, warrants & equity (BCF) security issues

20.00%

Expense (payroll, SGA, other) recording issues Liabilities, payables, reserves, and accrual estimate failures

15.00%

Deferred, stock-based, and/or executive comp issues Revenue recognition issues

10.00%

Accounts/loans receivables, investments & cash issues

5.00%

0.00%

Cash flow statement (SFAS 95) classification errors

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

As shown on the graph, since 2001, the top issues implicated in a restatement have converged towards a percentage point of approximately 11%. Indeed, nine of the top-ten issues in 2010 fell within a range between 8.3% and 13.6%. The one category to deviate from this apparent attractor is “Debt, quasi-debt, warrants & equity (BCF) security issues.” After 2006, the debt issue began a constant downward slope that, if continued during 2010, would have brought it within the

8

2010 Financial Restatements: A Ten Year Comparison Executive Summary - Financial Restatements 2001 to 2010 (continued) same percentage cluster as the other top issues.6 Instead of maintaining the slope, however, the number of restatements involving the debt issue increased markedly: 119 restatements in 2009 to 160 in 2010. Therefore, 2010 experienced 41 more restatements implicating the debt issue than the year before. Note that the entire increase in restatements in 2010 was only 52. Therefore, the debt issue represented a major component in the overall uptick of restatements during 2010.

One reason for the increase in debt related restatements was the publication of new guidance by the Emerging Issues Task Force (“EITF”). EITF 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,” became effective on January 1, 2009. Before EITF 07-05, companies treated warrants (stock) as equity, but after EITF 07-05 they were to be treated as a liability. Since the EITF took effect on January 1, 2009, many companies that did not adhere to the guidance in 2009 found themselves restating their financial statement in 2010 in order to reclassify warrants as a liability.7

6

he 2006 highpoint in dept related restatements was, to some extent, triggered by discussions related to additional interpretation of SFAS 133 T and EITF 00-19 that occurred in 2005 and 2006. For example, SEC Chief Accountant, Todd Hardiman, gave a speech during the 2005 AICPA National Conference, followed by a speech given by SEC Associate Chief Accountant, Stephanie Hunsaker during the 2006 AICPA National Conference. (For Ms. Hunsaker’s speech access the website at the following URL: http://www.sec.gov/news/speech/2006/spch121206slh.htm )

7

F or an example of such a restatement, see the 8-K filed by China Sky One Medical, Inc. (CIK Code 798985) on June 24, 2010, which stated that past financial can no longer be relied upon because “ASC 815-40, formerly EITF 07-05, which was effective as of January 1, 2009, should have been applied resulting in a reclassification of the warrants as a liability, measured at fair value, with changes in fair value recognized as part of other income or expense for each reporting period thereafter.”

(URL to 8-K: http://www.sec.gov/Archives/edgar/data/798985/000114420410034740/v188899_8k.htm )

9

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis - Total Restatements per Year

Total Restatements by Year Unique Filers Restatements

1402

577

613

2001

645

698

2002

755

814

2003

866

1550

1566

1795

1094

945

2004

1215 825

2005

2006

2007

920

2008

640

683

2009

699

735

2010

Total Restatements by Year Disclosure Year

Unique Filers

Restatements

Growth Rate

2001

577

613

2002

645

698

13.87%

2003

755

814

16.62%

2004

866

945

16.09%

2005

1402

1550

64.02%

2006

1566

1795

15.81%

2007

1094

1215

-32.31%

2008

825

920

-24.28%

2009

640

683

-25.76%

2010

699

735

7.61%

Notes 1) The research is based on a database download of February 7, 2011.

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 and by not counting the restatement of a subsidiary if the parent files analogous restatement. (See Population section on page 3 of report.)

10

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis - Total Annual Restatements Only per Year

Total Annual Restatements Only Unique Filers Annual Restatements

1123

374

395

2001

448

487

2002

522

557

2003

613

1244

1133

1284

759

670

2004

835 536

2005

2006

2007

589

2008

417

440

2009

440

458

2010

Total Restatements by Year Disclosure Year

Unique Filers

Restatements

Growth Rate

2001

374

395

2002

448

487

23.29%

2003

522

557

14.37%

2004

613

670

20.29%

2005

1123

1244

85.67%

2006

1133

1284

3.22%

2007

759

835

-34.97%

2008

536

589

-29.46%

2009

417

440

-25.30%

2010

440

458

4.09%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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 and by not counting the restatement of a subsidiary if the parent files analogous restatement. (See Population section on page 3 of report.)

11

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis - Yearly Percentage of Quarterly vs. Annual Restatements

Yearly Percentage of Quarterly vs. Annual Restatements

64%

36%

70%

68%

71%

30%

32%

29%

2001 2002 2003

2004

80%

20%

72%

69%

28% 31%

64%

64% 62%

36%

36%

Annual Quarterly

38%

2005 2006 2007 2008 2009 2010

Percentage of Quarterly vs. Annual Restatements Quarterly Restatements

Annual Restatements

Disclosure Year

Total Restatements

Total

%

Total

%

2001

613

218

35.6%

395

64.4%

2002

698

211

30.2%

487

69.8%

2003

814

257

31.6%

557

68.4%

2004

945

275

29.1%

670

70.9%

2005

1550

306

19.7%

1244

80.3%

2006

1795

511

28.5%

1284

71.5%

2007

1215

380

31.3%

835

68.7%

2008

920

331

36.0%

589

64.0%

2009

683

243

35.6%

440

64.4%

2010

735

277

37.7%

458

62.3%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis - Largest Negative Restatement by Year

Largest Negative Restatements (U.S. $ in Millions)

Largest Negative Restatements $7,000

$6,355

$6,000 $5,193 $5,000

$4,513

$4,000 $3,465

$3,000

$2,377

$2,000 $1,000 $0

$671

$341 2002

2003

2004

2005

2006

2007

2008

$357 2009

$717

2010

Largest Negative Restatements by Year Disclosure Year

Company

Market

Impact on Net Income (U.S. Dollars)

2002

Tyco International Ltd.

NYSE

-4,512,700,000

2003

Healthsouth Corp.

NYSE

-3,465,294,000

2004

Federal National Mortgage Association (Fannie Mae)

NYSE

-6,335,000,000

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

TMST, Inc.

NYSE

-670,730,000

2009

USB AG

NYSE

-357,210,000

2010

Telecom Italia S.p.A

NYSE

-716,971,200

13

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis of Companies - Presently Listed on Amex, NASDAQ or NYSE Restatement Breakdown by Market (Unique Registrants Restating) Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Amex

10

9

17

24

41

50

38

36

25

28

Nasdaq

68

77

90

142

237

264

181

157

127

130

NYSE

39

66

87

113

197

163

123

81

62

76

OTC

55

51

62

77

138

255

193

205

202

257

Not listed

405

442

499

510

789

834

559

346

224

208

Total

577

645

755

866

1402

1566

1094

825

640

699

Notes 1) The research is based on a database download of February 7, 2011.

Cumulative Impact on Net Income of Publicly Traded Companies Presently on Market (Amex, NASDAQ, or NYSE) Disclosure Year

Negative Restatements

Positive Restatements

Total Restatements

Average Income Adjustment Per Restatement

Negative Restatements

Aggregate Negative Dollar Value

Positive Restatements

Aggregate Positive Dollar Value

Total Restatements

Aggregate Dollar Value

2002

136

-$13,947,730,025

25

$610,568,801

161

-13,337,161,224

-$82,839,511

2003

179

-$7,539,235,341

25

$191,700,205

204

-7,347,535,136

-$36,017,329

2004

239

-$11,637,440,946

51

$768,676,354

290

-10,868,764,592

-$37,478,499

2005

433

-$14,183,459,588

95

$2,869,730,252

528

-11,313,729,336

-$21,427,518

2006

438

-$14,824,023,774

84

$1,462,620,262

522

-13,361,403,512

-$25,596,558

2007

311

-$4,115,895,947

64

$708,363,511

375

-3,407,532,436

-$9,086,753

2008

243

-$2,337,932,454

54

$292,024,364

297

-2,045,908,090

-$6,888,579

2009

182

-$1,248,064,423

41

$223,505,240

223

-1,024,559,183

-$4,594,436

2010

193

-$1,897,623,362

46

$479,344,342

239

-1,418,279,021

-$5,934,222

Notes 1) The research is based on a database download of February 7, 2011.

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.

Restatements with No Impact on Income Statements

by Companies Presently on Amex, NASDAQ or NYSE Disclosure Year

Total Restatements

Restatements with No Impact

%

2002

161

39

24.22%

2003

204

64

31.37%

2004

290

87

30.00%

2005

528

133

25.19%

2006

522

156

29.89%

2007

375

126

33.60%

2008

297

103

34.68%

2009

223

70

31.39%

2010

239

95

39.75%

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) cash flow 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.

14

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis - Average Restatement Period per Year

Average Restatement Period Per Year Average Number of Days Restated

464

2001

539

573

2002

2003

619

2004

744

2005

717

644

2006

2007

510

496

491

2008

2009

2010

Average Restatement Period Disclosure Year

Restatements

Average Number of Days Restated

2001

613

464

2002

698

539

16.2%

2003

814

573

6.3%

Growth

2004

945

619

8.1%

2005

1550

744

20.2%

2006

1795

717

-3.5%

2007

1215

644

-10.3%

2008

920

510

-20.8%

2009

683

496

-2.6%

2010

735

491

-1.0%

Notes 1) The research is based on a database download of February 7, 2011.

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.

15

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Average Number of Issues per Statement

Average Issues Per Restatement Average Number of Issues Per Restatement

2.00

2001

2.14

2.11

2002 2003

2.20

2.44

2004 2005

2.01

1.90

2006

1.67

1.52

1.48

2007 2008

2009

2010

Average Number of Issues per Restatement Notification Disclosure Year

Total Issues Restated

Total Restatements

Average Number of Issues per Restatement

2001

1229

613

2.00

2002

1475

698

2.11

2003

1744

814

2.14

2004

2082

945

2.20

2005

3777

1550

2.44

2006

3615

1795

2.01

2007

2310

1215

1.90

2008

1535

920

1.67

2009

1035

683

1.52

2010

1088

735

1.48

Notes 1) The research is based on a database download of February 7, 2011.

2) For detail on the total number of issues restated per year, see table on page 20: Restatement Issue Breakdown by Year.

3) For detail on the total number of restatements per year, see table named All Restatements by Year.

16

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis - Restating Registrants by Accelerated Filer Status

Restating Registrant by Accelerated Filer Status US Accelerated Filers US Non-accelerated Filers

887

702 478

471

630

513

282

303

181 2003

2005

2004

472

448

2006

212

2007

385

424

142

2008

136

2009

2010

Restating Registrant by Accelerated Filer Status Filer Status

2003

2004

2005

2006

2007

2008

2009

2010

#

%

#

%

#

%

#

%

#

%

#

%

#

%

#

%

Accelerated Foreign Filers

8

1.1%

6

0.7%

42

3.0%

39

2.5%

37

3.4%

17

2.1%

14

2.2%

12

1.7%

Non-accelerated Foreign Filers

88

11.7%

86

9.9%

145

10.3%

192

12.3%

145

13.3%

124

15.0%

99

15.5%

127

18.2%

Accelerated U.S. Filers

181

24.0%

303

35.0%

513

36.6%

448

28.6%

282

25.8%

212

25.7%

142

22.2%

136

19.5%

Non-accelerated U.S. Filers

478

63.3%

471

54.4%

702

50.1%

887

56.6%

630

57.6%

472

57.2%

385

60.2%

424

60.7%

Total Unique Restaters

755

866

1402

1566

1094

825

640

699

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

3) A registrant’s accelerated filer status is determined from the last filing of the relevant year.

4) Foreign filers include Canadian registrants.

17

2010 Financial Restatements: A Ten Year Comparison Restatement Analysis - Average Number of Days to Restate

Number of Days to Restate Average Number of Days to File Restatement

65.60

28.81

24.98

2002

2003

29.94

35.46

28.95

16.80

19.28

2008

2009

4.95 2004

2005

2006

2007

2010

Average Number of Days to File a Restatement Disclosure Year

Days

2002

28.81

2003

24.98

2004

29.94

2005

35.46

2006

65.60

2007

28.95

2008

16.80

2009

19.28

2010

4.95

Notes 1) The research is based on a database download of February 7, 2011.

18

2010 Financial Restatements: A Ten Year Comparison Restatements - Without Prior Form 8-K, Item 4.02 Disclosure) Revision Restatements

Revision Restatements

Percentage Revision

Restatements without Form 8-K, Item 4.02 693 459

50.00% 452

430 296

2005

2006

2007

2008

2009

42.59%

41.74%

2006

2007

46.61%

52.85%

33.21%

362

2005

2010

2008

2009

2010

Restatements Without Form 8-K, Item 4.02 Disclosure Disclosure Year

Total Restatements

Total Restatements from 10-K Filers

Restatements from 10-K Filers Without an 8-K, Item 4.02

Percentage with no 8-K

2005

1550

1382

459

33.21%

2006

1795

1627

693

42.59%

2007

1215

1083

452

41.74%

2008

920

860

430

50.00%

2009

683

635

296

46.61%

2010

735

685

362

52.85%

Notes 1) The research is based on a database download of February 7, 2011.

2) 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 an 8-K within four business days. This new set of disclosure requirements became effective on August 23, 2004 and applied to all registrants that file 10-Ks for annual reports. One of the new reportable events that trigger a disclosure is the conclusion that a past financial statement should “no longer be relied upon.” Such a disclosure must be given in the Item 4.02 of the Form 8-K. 3) When a company concludes that it must issue a financial restatement that will undermine reliance on one or more past financial statements, the company must file a disclosure in an 8-K, Item 4.02, but such a disclosure would not be required if a restatement is to make adjustments that do not undermine an investor’s reliance on past financials. Audit Analytics uses the term “Revision Restatement” when past reliance is maintained.

19

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Issue Breakdown by Year Restatement Issue Breakdown by Year Accounting Issue Restated

2001

2002

#

%

Debt, quasi-debt, warrants & equity ( BCF) security issues

141

Expense (payroll, SGA, other) recording issues

146

Liabilities, payables, reserves and accrual estimate failures

2003

2004

2005

2006

2007

2008

2009

#

%

#

%

#

%

#

%

#

%

#

%

#

%

23.0%

119

17.0%

121

14.9%

168

17.8%

320

20.6%

491

27.4%

282

23.2%

190

23.8%

172

24.6%

150

18.4%

149

15.8%

147

9.5%

287

16.0%

231

19.0%

131

64

10.4%

94

13.5%

114

14.0%

158

16.7%

221

14.3%

233

13.0%

168

13.8%

Deferred, stock-based and/or executive comp issues

90

14.7%

90

12.9%

108

13.3%

117

12.4%

193

12.5%

324

18.1%

175

Revenue recognition issues

125

20.4%

141

20.2%

170

20.9%

191

20.2%

227

14.6%

201

11.2%

Accounts/loans receivable, investments & cash issues

48

7.8%

83

11.9%

83

10.2%

73

7.7%

157

10.1%

129

Cash flow statement (SFAS 95) classification errors

3

0.5%

14

2.0%

19

2.3%

44

4.7%

133

8.6%

Acquisitions, mergers, disposals, re-org acct issues

127

20.7%

100

14.3%

127

15.6%

167

17.7%

242

Tax expense/benefit/deferral/other (FAS 109) issues

38

6.2%

49

7.0%

92

11.3%

120

12.7%

Foreign, related party, affiliated, or subsidiary issues

57

9.3%

81

11.6%

102

12.5%

110

PPE intangible or fixed asset (value/diminution) issues

69

11.3%

78

11.2%

112

13.8%

Consolidation issues incl Fin 46 variable interest & off-B/S

43

7.0%

46

6.6%

84

EPS, ratio and classification of income statement issues

28

4.6%

34

4.9%

Inventory, vendor and/or cost of sales issues

53

8.6%

68

Capitalization of expenditures issues

27

4.4%

Depreciation, depletion or amortization errors

29

4.7%

Debt and/or equity classification issues

29

Gain or loss recognition issues

2010

#

%

#

%

20.7%

119

17.4%

160

21.8%

14.2%

106

15.5%

100

13.6%

94

10.2%

78

11.4%

90

12.2%

14.4%

124

13.5%

82

12.0%

82

11.2%

162

13.3%

108

11.7%

74

10.8%

73

9.9%

7.2%

96

7.9%

80

8.7%

81

11.9%

73

9.9%

197

11.0%

151

12.4%

110

12.0%

52

7.6%

67

9.1%

15.6%

271

15.1%

165

13.6%

107

11.6%

66

9.7%

64

8.7%

186

12.0%

180

10.0%

128

10.5%

103

11.2%

57

8.3%

63

8.6%

11.6%

204

13.2%

203

11.3%

118

9.7%

60

6.5%

41

6.0%

61

8.3%

136

14.4%

206

13.3%

179

10.0%

91

7.5%

62

6.7%

41

6.0%

49

6.7%

10.3%

99

10.5%

142

9.2%

141

7.9%

55

4.5%

66

7.2%

33

4.8%

48

6.5%

35

4.3%

52

5.5%

88

5.7%

78

4.3%

63

5.2%

42

4.6%

31

4.5%

35

4.8%

9.7%

79

9.7%

86

9.1%

143

9.2%

131

7.3%

68

5.6%

51

5.5%

43

6.3%

31

4.2%

52

7.4%

43

5.3%

53

5.6%

223

14.4%

56

3.1%

47

3.9%

35

3.8%

28

4.1%

16

2.2%

46

6.6%

48

5.9%

70

7.4%

235

15.2%

82

4.6%

52

4.3%

32

3.5%

20

2.9%

15

2.0%

4.7%

30

4.3%

121

14.9%

60

6.3%

57

3.7%

84

4.7%

52

4.3%

20

2.2%

20

2.9%

14

1.9%

38

6.2%

40

5.7%

56

6.9%

41

4.3%

84

5.4%

68

3.8%

34

2.8%

28

3.0%

12

1.8%

13

1.8%

Pension and other post-retirement benefit issues

2

0.3%

5

0.7%

17

2.1%

18

1.9%

32

2.1%

25

1.4%

24

2.0%

10

1.1%

7

1.0%

9

1.2%

Lease, SFAS 5, legal, contingency and commitment issues

16

2.6%

44

6.3%

52

6.4%

61

6.5%

284

18.3%

78

4.3%

46

3.8%

14

1.5%

9

1.3%

7

1.0%

Balance sheet classification of assets issues

16

2.6%

21

3.0%

27

3.3%

34

3.6%

63

4.1%

53

3.0%

34

2.8%

21

2.3%

7

1.0%

6

0.8%

Intercompany, investment in subs/affiliate issues

23

3.8%

33

4.7%

31

3.8%

43

4.6%

90

5.8%

44

2.5%

23

1.9%

21

2.3%

8

1.2%

6

0.8%

Financial derivatives/hedging (FAS 133) acct issues

15

2.4%

34

4.9%

13

1.6%

27

2.9%

66

4.3%

67

3.7%

31

2.6%

19

2.1%

17

2.5%

4

0.5%

Comprehensive income issues

2

0.3%

1

0.1%

4

0.5%

5

0.5%

34

2.2%

13

0.7%

14

1.2%

7

0.8%

3

0.4%

2

0.3%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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: 613 in 2001; 698 in 2002; 814 in 2003; 945 in 2004; 1550 in 2005; 1795 in 2006; 1215 in 2007; 920 in 2008; 683 in 2009; and 735 in 2010. (See table on page 10: Total Restatements by Year).

20

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Debt, Quasi-Debt, Warrants & Equity (BCF) Security Issues

Restatement Issue Analysis

Restatement Issue Analysis

Debt Related Accounting Issues

Debt Restatements

Debt/Warrant/Equity as % of All Restatements % of all restatements

491

27.35% 23.21%

23.00% 320

141

2001

190

168 119

121

2002

2003

17.05%

282

119

2004

2005

2006

2007

2008

2009

21.77%

20.65%

20.65% 17.78%

17.42%

14.86%

160

2010

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Debt, Quasi-Debt, Warrants & Equity (BCF) Security Issues Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Debt Restatements

141

119

121

168

320

491

282

190

119

160

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of Total Restatements

23.00%

17.05%

14.86%

17.78%

20.65%

27.35%

23.21%

20.65%

17.42%

21.77%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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.

21

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Expense (Payroll, SGA, Other) Recording Issues

Restatement Issue Analysis

Restatement Issue Analysis

Expense (Payroll, SGA, Other) Recording Issues Expense (payroll, SGA, Other) Recording Issues

Expense Recording Issues as % of All Restatements

287

% of all restatements

23.82% 24.64% 231 19.01%

18.43% 172 146

2001

2002

150

2003

149

147

2004

2005

15.99%

15.77%

14.24%

131

2006

2007

2008

106

100

2009

2010

15.52%

13.61%

9.48%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Expense (Payroll, SGA, Other) Recording Issues Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Expense Restatements

146

172

150

149

147

287

231

131

106

100

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

23.82%

24.64%

18.43%

15.77%

9.48%

15.99%

19.01%

14.24%

15.52%

13.61%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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.

22

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Liabilities, Payables, Reserves and Accrual Estimate Failures

Restatement Issue Analysis

Restatement Issue Analysis

Liabilities/ Payables/Reserves /Accural Estimate Failures Liabilities, payables, reserves and accrual estimate failures

221

% of all restatements

233

16.72% 13.47% 14.00%

168

158

94

2002

114

2003

14.26%

12.98%

13.83%

10.44% 94

64

2001

Liabilities/ Payables/Reserves as % of All Restatements

2004

2005

2006

2007

2008

78

2009

10.22%

11.42%

12.24%

90

2010

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Liabilities, Payables, Reserves and Accrual Estimate Failures Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Liabilities Restatements

64

94

114

158

221

233

168

94

78

90

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

10.44%

13.47%

14.00%

16.72%

14.26%

12.98%

13.83%

10.22%

11.42%

12.24%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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) L iabilities, 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.

23

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Deferred Stock-Based and/or Executive Compensation Issues

Restatement Issue Analysis

Restatement Issue Analysis

Deferred, Stock-Based and/or Executive Comp. Issues Deferred, Stock-Based and/or Executive Comp. Issues

Deferred Comp as % of all restatements % of all restatements

324

18.05% 14.68%

193

90

90

2001

2002

12.89% 13.27%

14.40% 12.38% 12.45%

13.48% 12.01%

175

11.16%

124

108

117

2003

2004

2005

2006

2007

2008

82

82

2009

2010

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Deferred Stock-Based and/or Executive Compensation Issuest Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Deferred Comp.

Issues

90

90

108

117

193

324

175

124

82

82

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

14.68%

12.89%

13.27%

12.38%

12.45%

18.05%

14.40%

13.48%

12.01%

11.16%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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 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.

24

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Revenue Recognition Issues

Restatement Issue Analysis

Restatement Issue Analysis

Revenue Recognition Issues

Revenue Recognition as % of All Restatements

Revenue Recognition Issues

% of all restatements

227

20.39% 20.20% 20.88%

201

191 170

20.21%

162

14.65%

141 125

2001

2002

2003

2004

2005

2006

2007

13.33% 11.20%

108

2008

74

73

2009

2010

2001

2002

2003

2004

2005

2006

2007

11.74%

2008

10.83%

9.93%

2009

2010

Revenue Recognition Issues Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Revenue Restatements

125

141

170

191

227

201

162

108

74

73

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

20.39%

20.20%

20.88%

20.21%

14.65%

11.20%

13.33%

11.74%

10.83%

9.93%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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) 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.

25

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Accounts/Loans Receivable, Investments & Cash Issues

Restatement Issue Analysis

Restatement Issue Analysis

Accounts/ Loans Receivable, Investments & Cash Issues

Accounts/Loans Receivable as % of All Restatements

Accounts/ Loans Receivable, Investments & Cash Issues

% of all restatements 11.89%

157 129

83

83

11.86% 10.20% 7.72%

7.83% 96

73

81

80

10.13%

9.93%

7.19%

7.90%

8.70%

73

48

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Accounts/ Loans Receivable, Investments & Cash Issues Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Accounts/Loans Receivable

48

83

83

73

157

129

96

80

81

73

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

7.83%

11.89%

10.20%

7.72%

10.13%

7.19%

7.90%

8.70%

11.86%

9.93%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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) A ccounts/ 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.

26

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Cash Flow Statement (SFAS 95) Classification Errors

Restatement Issue Analysis

Restatement Issue Analysis

Cash Flow Statement (SFAS 95) Classification Errors Cash Flow Statement (SFAS 95) Classification Errors

Cash Flow as a % of all Restatements % of all restatements

197

151

10.97%

133

67

3 2001

14

19

2002

2003

9.12%

8.58%

110

7.61%

4.66%

52

44

12.43% 11.96%

2.01%

2.33%

2002

2003

0.49% 2004

2005

2006

2007

2008

2009

2010

2001

2004

2005

2006

2007

2008

2009

2010

Cash Flow Statement (SFAS 95) Classification Errors Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Cash Flow Restatements

3

14

19

44

133

197

151

110

52

67

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

0.49%

2.01%

2.33%

4.66%

8.58%

10.97%

12.43%

11.96%

7.61%

9.12%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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) 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.

27

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Acquisitions, Mergers, Disposals, Re-Organization Accounting Issues

Restatement Issue Analysis

Restatement Issue Analysis

Acquisitions/Mergers/Disposals/Re-Org. Acct. Issues

Acquisitions/Mergers as % of all Restatements

Acquisitions, mergers, disposals, re-org acct issues

% of all restatements 271

242

20.72% 17.67%

167 127

2001

13.58%

107

100

2003

15.61% 15.10%

11.63%

127

2002

14.33%

165

15.60%

2004

2005

2006

2007

2008

66

64

2009

2010

2001

2002

2003

2004

2005

2006

2007

2008

9.66%

2009

8.71%

2010

Acquisitions, Mergers, Disposals, Re-Organization Acct. Issues Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Acquisitions Restatements

127

100

127

167

242

271

165

107

66

64

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

20.72%

14.33%

15.60%

17.67%

15.61%

15.10%

13.58%

11.63%

9.66%

8.71%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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) 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.

28

2010 Financial Restatements: A Ten Year Comparison Restatement Issue Analysis - Tax Expense/Benefit/Deferral/Other (FAS 109) Issues

Restatement Issue Analysis

Restatement Issue Analysis

Tax/Expense/Benefit/Deferral/Other (FAS 109) Issues

Tax/Expense/Benefit/Deferral as % of All Restatements

Tax expense/benefit/deferral/ other (FAS 109) issues 186

% of all restatements 180 12.70% 11.30% 103

92

2001

6.20%

49

2002

2003

10.03% 10.53%

128

120

38

12.00%

2004

2005

2006

2007

2008

57

63

2009

2010

2001

11.20% 8.35%

8.57%

2009

2010

7.02%

2002

2003

2004

2005

2006

2007

2008

Tax Expense/Benefit/Deferral/Other (FAS 109) Issues Disclosure Year

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Tax/Expense Restatements

38

49

92

120

186

180

128

103

57

63

Total Restatements

613

698

814

945

1550

1795

1215

920

683

735

% of All Restatements

6.20%

7.02%

11.30%

12.70%

12.00%

10.03%

10.53%

11.20%

8.35%

8.57%

Notes 1) The research is based on a database download of February 7, 2011.

2) The data counts all restatements when a registrant files multiple restatements.

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) 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

2010 Financial Restatements: A Ten Year Comparison 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

2010 Financial Restatements: A Ten Year Comparison 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

2010 Financial Restatements: A Ten Year Comparison 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® - Audit, Regulatory and Disclosure Intelligence 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.

• Restatements Identify financial restatements by type, auditor and peer group. Analyze by date, period and specific issue.

• 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.

• SEC Comment Letters An extensive collection of more than 125,000 fully analyze SEC Comment Letters indexed according to a taxonomy of 2,800 issues, rules, and regulations.

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® - Audit, Regulatory and Disclosure Intelligence 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.

• Restatements Identify financial restatements by type, auditor and peer group. Analyze by date, period and specific issue.

• 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.

• SEC Comment Letters An extensive collection of more than 125,000 fully analyze SEC Comment Letters indexed according to a taxonomy of 2,800 issues, rules, and regulations.

Examples of Recent Assignments from Law Firm Clients

• Identify all SOX 404 filings where the management assessment disagrees with the auditor attestation.

• Discover examples of SOX 302 disclosures that identified and remediated the control weakness in the same reporting period.

• Give a list of all Revision Restatements (restatements filed without a prior 8-K, Item 4.02 disclosure) during or after 2007 and identify which of those restatements were disclosed by a company with an IPO during or after 2007.

• Provide the SOX 302 and SOX 404 disclosure text from companies with an IPO during or after 2007 that subsequently filed a Revision Restatement.

• Supply relevant excerpts of SEC Comment Letters that discussed a Fin 48 and contained the phrase “change in estimate” or “correction of an error.”

• Provide the SOX 302 disclosure text from companies that engaged a particular Big-4 auditor and filed a SAB 108 that noted a “change in estimate.”

• Indentify identify financial restatements that made adjustments in goodwill that also addressed issues regarding company acquisitions and accounts payable. Provide stock price history of companies that filed such restatements.

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