Introduction This paper describes how managers get reputational penalties simply because of announcing earnings restatements which have been on the increase in the recent years. The penalties are meant to act in accordance with the stated laws that tend to punish the persons who break the GAAP rules. Managers have been known to indulge in such fraudulent activities since they believed that the law will not catch up with them in any way. However things have changed for the better in the current times and the numerous laws that have been set up have begun catching up with the offenders. Recent reports from the GAO department have shown much improvement when compared to the previous years’ reports. The previous ones had reported high figures of violators in financial reporting fraud and earnings restatements. Therefore, a lot needs to be done so at to ensure that such persons are brought to book. The Problem In the US, the Government Accounting Office (GAO) has reported major incidences of financial fraud and earnings restatements. For instance in the year 1997 to 1998, highest rates of fraud were reported unlike in the previous years and the GAO department was quick to establish why this occurred. In general, this drop in quality was of high importance to various parties including the practitioners and academics alike who are partly concerned with such events. To them this could be avoided considerably if the acting manager’s action were monitored before things were out of control. More so, they believed that the internal controls that were present did not discipline the firm managers effectively and for that reason the proliferation of such earning restatements will still continue if measures are not employed. (Desai, et al., 2006 p 2) In addition to that, blame could also be directed to other avenues since there were limited resources that could be used by the SEC in investigating the GAAP violations that went unnoticed. All these are serious crimes requiring strict penalties to the offenders. Desai, et al. (2006) add that, the lack of strict measures as described above has encouraged the managers to do such violations since they are not intimidated by the law and this entails that the managers will continue doing that inclusive to other types of corporate frauds since they have managed to get away from previous manipulation earnings which they have accomplished. For most companies the managers engage in the “blame game” when they realize that the authorities have discovered their fraudulent activities. They normally give excuses saying that they were not aware when such events were happening while in the real sense they were the drivers of that since they know how to doge their way out. Such events should result to their dismissal until analysis is done with the available proof and penalties can be a little bit harsh depending on the magnitude of the crime. It is for this reason that previous investigations have seen numerous penalties being unleashed on such managers Agrawal et al., (1999). Reputation penalty was the way forward for managers who were restated in 1997 and 1998 earnings and the same can also apply today since the frauds committed at that time are quite similar to those of now. Therefore, the penalty was meant to focus on management turnover and subsequent ex post, which was d