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Tax Refunds on Overstated Earnings: A Valuation Puzzle
Author(s) -
Churyk Natalie Tatiana,
Mantzke Katrina L.,
Johnson James M.,
Reinstein Alan
Publication year - 2014
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22004
Subject(s) - earnings , commission , accounting , valuation (finance) , financial statement , enforcement , revenue recognition , audit , business , revenue , actuarial science , finance , financial accounting , accounting information system , law , political science
The number of financial statement restatements practically doubled from 1998 to 2002 (Huron Consulting Group, [10][, 2002]). Approximately 37% of these restatements are related to revenue recognition, with most of these resulting in an original overstatement of earnings. From 2000 to 2009, the Securities and Exchange Commission (SEC), on average, issued 200 Accounting and Auditing Enforcement Releases (AAERs) each year (see SEC.gov). Most AAERs lead to restatements. While prior literature focused on the negative consequences to firms from reporting a restatement, the authors' study looks for a mitigating effect from reporting good news along with the bad.