And the Leading Cause of Restatements Is …

Remember back in the early days of Sarbanes-Oxley, when we kept seeing all those reports that the leading cause of companies running afoul of the new law was problems with their tax reporting?

That's all under control now, right?

Nope. We're getting closer, but we're not there yet.

Businesses are reporting far fewer material weaknesses these days, but the main source of failures is still income tax issues, according to a new report from Deloitte (available here). In Year 6 since the law passed, tax accruals and deferrals produced 27 percent of all GAAP failures reported — not much better than the 30 percent in Year 4.

What's at the root of this ongoing mess? Deloitte's research picks out two factors that explain nearly half of the tax-related material weaknesses in 2009: lack of review by management, and personnel issues (either lack of staff or inadequate training).

No big surprise that companies are running risks by keeping their tax departments' resources pared to the bone. They might have to rethink that policy if they don't want to end up like one company that Deloitte quotes, forced to fess up that it failed to maintain “a sufficient complement of tax resources with the required proficiency to identify, evaluate, review, and report complex tax accounting matters.”

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