1.Define the term: Restating Financial Reports”
It is well known that over the past decade the amount of errors being discovered within the financial statements of publicly held companies has risen. One such error was announced by the internet sales company Overstock.com in early 2009. Due to an accounting error, partners of the company were under billed by $1.8 million dollars over the course of 2008. Overstock chose to record this entry incorrectly which falsely ballooned the company’s revenues; in turn, causing them to record an incorrect profit of $1.0 million for the year ended December 31, 2008. Had this entry been booked correctly and within the guidelines of the generally accepted accounting principles (GAAP), Overstock would have recorded its earnings correctly, showing a loss of $0.8 million.
This shows us how important restating a financial statement correctly is so important. A financial statement restatement occurs when a company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported. A financial statement also occurs when there needs to be a change in accounting principles or there is an error.
The number of financial restatements by public companies has increased in the recent years due to increased scrutiny following the well-known accounting scandals at Enron and WorldCom, amount others. The restatement usually involves a completely new audit and in some cases may affect future financial statements in the coming year. The main purpose to restating the financial statement is to review an earlier issued set to financial statements. When looking at the size of restating is usually very large. One reason for the restatement to be passed over would be that the error or misstatement was not “material” or significant for the company, therefore giving them no reason