A new analysis by Audit Analytics reveals that total financial restatements reached a 15-year low in 2016.
According to 2016 Financial Restatements: A Sixteen Year Comparison, the total number of restatements last year was 671. That’s down 11 percent from 2015’s 756 restatements and the lowest total since 2001, when there were 625 restatements.
A breakdown of those statistics shows that reissuance restatements, which are the more severe type that are disclosed on 8-Ks and require a reissuance of past financial statements because of a material error, have declined nine consecutive years to a low of 130 in 2016. That’s the fewest since the 8-K disclosure requirements took effect in August 2004.
The other type of restatement, the revision restatement, is an adjustment in a periodic report without a prior 8-K disclosure, or a revision of prior immaterial adjustments. For that reason, it is considered less disruptive and doesn’t deter from earlier financials. In 2016, 78.3 percent of all restatements were revision restatements, the highest percentage since 2005.
The severity of the restatements filed in 2016 was considered low in every aspect, including:
- Negative impact on net income.
- Average cumulative impact on net income per restatement.
- Percentage of restatements without any impact on income statements.
- Average number of days restated.
- Average number of issues identified.
A restatement’s severity is also gauged by the time needed to assess and correct it. In 2016, an average of 5.37 days was needed by public companies to file the restatement – the fourth lowest in the last decade.
In addition, the number of accelerated filers that disclosed restatements has declined. While total restatements from accelerated filers rose from 2011 to 2014, with a high of 352 in 2014, they have dropped each year since to 284.
Accelerated filers also experienced a drop in reissuance restatements, which are now at their lowest total in 12 years.
Restatements disclosed by nonaccelerated filers have continued to decline and hit a record low of 284 last year.
The following are the top 10 restatement issues in 2016, according to Audit Analytics:
- Debt, quasi-debt, warrants and equity security.
- Tax expense, benefit, deferral and other (FAS 109).
- Cash flow statement (SFAS 95).
- Revenue recognition.
- Expense (payroll; selling, general, and administrative; other) recording.
- Liabilities, payables, reserves and accrual estimate failures.
- Foreign, related party, affiliated or subsidiary.
- Inventory, vendor and/or cost of sales.
- Accounts/loans receivable, investments and cash.
- Property, plant and equipment intangible or fixed asset (value/diminution).
Audit Analytics’ report is based on more than 15,000 financial statements and/or nonreliance filings by more than 9,000 US Securities and Exchange Commission public registrants since January 2001.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.