An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Chan Li
University of Kansas

Qian Wang
University of Kansas

Abstract: This paper investigates the benefit of 404 compliance from the restatement perspective. We examine the relationship between internal control material weaknesses (ICMW) and restatement. We find restatements are more likely to occur when companies have material weaknesses in their internal control over financial reporting process. We also find certain types of internal control problems are more likely to lead to restatements. Since material weaknesses are the most severe type of internal control problems, the restatements from companies with ICMW should be more severe than those from companies without ICMW. Consistent with our expectations, restatement companies with ICMW are more likely to restate their core accounts and have more restated accounts or accounting issues.

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