The Influence of Materiality and Voluntary Incentives on Companies’ Decisions to Announce Accounting Restatements Through 8-K And/Or Amended Filings

59 Pages Posted: 3 Jul 2009

See all articles by Marlene Plumlee

Marlene Plumlee

University of Utah - School of Accounting

Teri Lombardi Yohn

Emory University Goizueta Business School

Date Written: July 2, 2009

Abstract

Many companies fail to announce restatements in 8-K reports and/or in amended financial statement filings (10-K/As). This lack of disclosure leads some to question whether companies are intentionally attempting to hide restatements from shareholders or whether, given the conservative nature of auditors and regulators, the lack of disclosure is due to the immaterial nature of some restatements. This study examines the relative importance of quantitative and qualitative materiality factors and voluntary incentive factors in explaining companies’ decisions to file 8-K and/or amended reports for restatements. We find that the decision to file an 8-K report is primarily driven by materiality factors, although voluntary incentives provide incremental explanatory power even after controlling for the materiality of the restatement. In addition, in 2004 the SEC clarified that restatements are required to be announced via 8-K reports. Our findings suggest that this rule change appears to have decreased the importance of voluntary incentive factors in the 8-K filing decision. In contrast, we document that materiality factors explain much less and voluntary incentives explain much more of the amended filing decision than the 8-K decision. After the SEC’s 8-K rule change, we find a decrease in the importance of both the materiality and voluntary incentive factors in the amended report decision and a decrease in amended filings. This might suggest that the SEC’s clarification of the requirements for filing 8-K reports left companies unclear as to the requirements for filing amended reports.

Keywords: restatement, disclosure, materiality, voluntary incentives

JEL Classification: M41, G14

Suggested Citation

Plumlee, Marlene A. and Yohn, Teri Lombardi, The Influence of Materiality and Voluntary Incentives on Companies’ Decisions to Announce Accounting Restatements Through 8-K And/Or Amended Filings (July 2, 2009). Available at SSRN: https://ssrn.com/abstract=1429050 or http://dx.doi.org/10.2139/ssrn.1429050

Marlene A. Plumlee (Contact Author)

University of Utah - School of Accounting ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Teri Lombardi Yohn

Emory University Goizueta Business School ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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