Journal of Accountancy Article: Ethics and Restatements

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Recommended: The importance of corporate governance

In an article by the Journal of Accountancy, the definition for restatement is given as “revising previously issued financial statement to correct an error (Hall & Aldridge, 2007)”. Restatements occur when a company must adjust previously issued financial statements to correct an error as opposed to completing a Form 8-K filing; this avoids all periods and amendments from needing change. As a result, the applicable annual financial statements would reference the restatement based upon the practicing auditors' opinion and SEC requirement.
Restatements are not caused by any specific accounting standard but internal company issues instead. Such concerns that have given cause to create restatements are:
• Complex wording of the accounting standard(s)
• Internal controls
• Materiality thresholds,
• Judgment; not being sure of the response/report given

While the restatement themselves are not directly responsible for the consequences, it does expose the underlying governance and control problems that both accountants and auditors face in their roles to provide transparency and accurate reporting. To keep confidence and the business operating, the company could in good faith replace those executives and/or employees that did not address or caused the restatement. Also, the company can adopt and practice the appropriate corporate governance measures, ensure proper communication is used at all times.
Despite the cause of restatement being human error, financial statements with reported restatements do have an effect on stock prices. Financial statements play a major role in the success and growth of a company. These reports are given to investors, banks, stakeholder, and the government (as needed) alike to show earnings and/or lack th...

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...07). Changes in accounting for changes . Journal of Accountancy, Retrieved from http://www.journalofaccountancy.com/Issues/2007/Feb/ChangesInAccountingForChanges.htm
(n.d.). Text o f federal securities laws regarding the book s and record s provisions (Appendix F). Retrieved from website: http://www.justice.gov/criminal/fraud/fcpa/docs/response2-appx-f.pdf
PCAOB. (2004). Au section 333: Management representation. Retrieved from http://pcaobus.org/standards/auditing/pages/au333.aspx
U.S. Securities and Exchange Commission, (2003).Improper influence on conduct of audits. Retrieved from website: https://www.sec.gov/rules/final/34-47890.htm
Why firms restate annual earnings and why investors should beware. (2002, October 23). Knowledge @ Wharton, Retrieved from https://knowledge.wharton.upenn.edu/article/why-firms-restate-annual-earnings-and-why-investors-should-beware/

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