S E C Clawback for Accounting Violations

Firms with clawback provisions are over 2.5 times more likely to report material misstatements as revisions compared with firms without clawback provisions (70.1 percent and 26.8 percent respectively)

Managers are more likely to use discretion afforded by the materiality rules to correct misstatements through revisions instead of restatements.

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It was “an unintended consequence of clawbacks, namely that clawback provisions deter the filing of restatements upon a misstatement discovery”


Corporate Governance and Earnings Management

Companies that engage in earnings management raise questions about the role of corporate governance and consequences of earnings management.

How is it that managers, the board of directors, and audit committee failed to identify and stop earnings management?

What was management’s role in choosing to use various financial shenanigan techniques to make the company look better than it really is?

What role did the internal controls over financial reporting play in keeping earnings management at bay?

These are a few of the questions to be asked when evaluating the consequences of earnings management.