To provide evidence on the pervasiveness of material weakness disclosures prior to
Sarbanes-Oxley we search all 10-Ks in the EDGAR database for the three years prior to
Section 302 (from August 1, 1999 to August 1, 2002) using the keywords ‘‘material
weakness’’ and ‘‘material weaknesses.’’ We identify 61 distinct disclosures of material
weaknesses. Of these 61 disclosures, 40 are listed under Item 9—Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure, and pertain to
a change in auditor, the mandatory disclosure requirement discussed above. Among the 21
voluntary disclosures noted, six were disclosed in conjunction with a restatement of the
financial statements, four with the disclosure of theft or fraud, and two were identified
and disclosed by new senior management. Clearly there has been a marked increase in the
disclosure of material weaknesses following the passage of Sarbanes-Oxley, opening the
door to many new studies in this area.