A recent study by Sarah Rice of Texas A&M and David Weber and Biyu Wu of the University of Connecticut has found that everyone's favorite section of the Sarbanes-Oxley Act of 2002 is falling short on expectations:
The study, which appears in in the new issue of the American Accounting Association’s journal The Accounting Review, found that not only do companies that give advance warning of internal-control problems gain nothing by their transparency but they are actually penalized compared to companies that divulge such problems only when forced to restate their finances, which is too late to be of help to investors.
Wait, wait, wait, wait, wait. Are they saying that a company, in the spirit of the law, that discloses internal control weaknesses in a timely fashion is no better off than if they just keept their traps shut about it until it's too late?!
Yep, that's what they're saying.
"We find no evidence that penalties following a restatement are more likely for firms that fail to detect and disclose their control weakness as required,” said the study. “Instead, firms that do report their control weaknesses in a timely manner are generally more likely to face [varied] penalties in the event of a later restatement. These results are consistent with the disclosure of control weaknesses making it difficult for management to plausibly claim later that they had been unaware of the underlying conditions in the control environment that led to their restatements."
Welp. Shall we pack it in then, opiners?