What Is a Restatement?

A restatement is an act of revising one or more of a company’s previous financial statements to correct an error. Restatements are necessary when it is determined that a previous statement contained a "material" inaccuracy. This can result from accounting mistakes, noncompliance with 澳洲幸运5开奖号码历史查询:g🔯enerally accepted accounting principles (GAAP), fraud, misrepresentation,🌳 or a simple clerical error. 

Understanding Restatements

Company management and 澳洲幸运5开奖号码历史查询:independent auditors are responsible for ensuring that quarterly and annual financial statements accurately reflect the financial condition of a firm. Sometimes, previous statements need to be amended. At times, these mistakes will be spotted by internal auditors. On other occasions, it might be a third party, such as the 澳洲幸运5开奖号码历史查询:Securities and Exchange Commission (SEC), that spots them.

澳洲幸运5开奖号码历史𒆙查询:The Financial Accounting Standards Board (FASB) requires companies to issue a restatement to correct previous errors. 澳洲幸运5开奖号码历史查询:Accountants are responsible for deciding whether a past error is “mat♕erial” enough to warra♏nt a restatement.

Material is a loose term that is not accompanied by specific percentage guidelines and so forth. As a general rule of thumb, an error can be considered material if the incorr✤ect information would lead those receiving the statements to come to inaccurate 𝕴conclusions as part of a standard analysis.

If an issue or error is found that affects part of a financial document or the document as a whole, a restatement will likely♐ be required. Additionally, if certain key information about the original statement is received after the first statement was released, a restatement may be issued to adjust the financials based on the discoveries.

The Dangers of Restatements

Many restatements are the result of innocent mistakes and basic misinterpretation. However, some can raise red flags, highlighting potential fraud or incompetence. Over-reporting a company’s gains can be very misleading. It can lead investors to believe the company is in a stronger financial position than is actually the case. Based on the inaccurate information, investors may perform actiꦆons, in regards to the previously made investme⛎nts, that otherwise would not have been made.

Negative restatements are regularly frowned on, shaking investor confidence and causing share prices to decline. They can also lead to fines: Hertz Global Holdings Inc. (HTZ) was ordered to pay a $16 million 澳洲幸运5开奖号码历史查询:civil penalty after internal auditors discovered errors in several of its previous financial statements. In 2015, the car rental company disclosed that restatements would weigh on profits for 2011, 2012,𒐪 and 2013.

Real-Life Example of a Restatement

In February 2019, Molson Coors Brewing Co. (TAP) revealed it would restate its financial statements for 澳洲幸运5开奖号码历史查询:fiscal years (FY) 2016 and 2017 after auditors discovered accounting blunders for 澳洲幸运5开奖号码历史查询:income taxes related to 澳洲幸运5开奖号码历史查询:deferred tax liabilities (DTL).

In a filing with regulators, the beer maker blamed the errors on its 澳洲幸运5开奖号码历史查询:acquisition of a remaining 58 percent stake in MillerCoors in 2016. Understating deferred tax liability (DTL) and income tax expense boosted net profits by nearly $400 million in 2016. Overall, the company said it understated the value of the taxes owed but not yet paid on its 澳洲幸运5开奖号码历史查询:balance sheet by $248m, and overstated its total equity by the same amount.

The finding did not inspire much confidence in Molson Coors Brewing’s accounting prac💝tices, as 🍌reflected by the sharp subsequent markdown in the company’s share price.

Restatement Requirements

When a publicly traded company determines it needs to amend its financial statements, it must file SEC Form 8-K within four days to notify investors of non-reliance on previously issued financial statements. It also needs to file amended 澳洲幸运5开奖号码历史查询:10-Q forms for the affected quarters and possibly amended 10-Ks, depending on how many accounting periods are affected by the erroneous 🍌data.

Companies should also provide a breakdown of how past errors occurred, how they were corrected, and whether there will likely be any future ramifications in their latest financial statements. These comments usually appear in the 澳洲幸运5开奖号码历史查询:footnotes.

Special Considerations

When companie🌜s issue restatements, investors are advised to ascertain to the best of their abilitie✱s the seriousness of the error reported. How much of an impact is it likely to have and, more importantly, was it an innocent mistake, or something that appears to be more sinister? Look for indications from management on how it plans to stop similar mistakes from happening in the future.

It is also worth remembering that changes in certain financial estimates are not required, as these are based on anticipated events and not ones that have already occurred. These changes must🥂 only be reported on the next financial statem𓂃ent after the change is made and are not applied retroactively.

Restatement FAQs

ꦆWhat Is the Difference Between Reclassification and Restatement?

A restatement is the restat🐷ement of a revised financial statement. The restatement is purposed to correct what was previously reported erroneously. A reclassification involves correcting the classification of a transaction or entry, moving it from one ledger to another. For example, one couജld reclassify an entry from a current asset to a long-term asset.

What Is the Difference Between Revisᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚion and Restatement?

A revision is the correction of a reported amount in subsequent financial statements. However, the p♔reviously reported financial statement need not be reissued. With a restatement, on the other hand, the error must be material, prompting a revision and the issuance of 🌌a corrected financial statement.

What Is the Restatement of Torts?

The Restatement of Torts is a resource published by the American Law Institute (ALI) explaining the law as it pertains to certain situations, specifically involving torts. There are two Restatement of Torts: Restatement 𝓡of the Law Second, Torts, and Restatement of the La🧸w Third, Torts, which is the most recent published version.

What Is the Restatement of Contracts?

The Restatement of Contracts is a resource published by the American Law Institute (ALI) explaining the law as it pertains to contracts. In other words, they help courts clarify and i𝔉nterpret contract law.

The Bottom Line

When financial reports contain material inaccuracies, companies must correct the accounting error and reissue a corrected version of the financial statement. The error could have resulted from oversight, simple mistakes, or some𓆉thing more sinister, such as fraud. Despite the underlying reason, errors can cause those examining the statements to make decisions based on inaccurate data.