Restatement data for 2014 suggest companies are getting better at financial reporting -- producing fewer erroneous reports, with less damaging effects, and correcting mistakes more quickly when they find them, the latest report from Audit Analytics shows. Contrary to all the good news, however, restatements among accelerated filers are not falling.

“What we’re seeing here is the positive effects of Sarbanes-Oxley Section 404 and internal controls,” Don Whalen, general counsel and director of research at Audit Analytics, which produced its most recent report showing restatement numbers overall are declining, as are indicators of the severity of restatements. 

In 2014, the total number of restatements among companies that file a Form 10-K with the Securities and Exchange Commission fell to 831 from 867 in 2013. The average income adjustment per restatement also fell to $1.9 million, the lowest since the 2006 average of $6.13 million.

That average has plummeted in part, says Whalen, because an increasing number of restatements have no impact on earnings at all. Restatements resulting from problems with the statement of cash flows account for more than 20 percent of all restatements in 2014, Audit Analytics reports. Cash flow issues have risen steadily as a cause for restatements over the past five years, accounting for less than 10 percent of restatements in 2009.

Another factor, says Whalen, is the continued increase in “revision restatements,” or restatements that are not foretold in a Form 8-K filing, so they correct mistakes that are not so significant that investors can no longer rely on the original but erroneous filing. Revision restatements have risen steadily as a component of all restatements in the past decade, reaching three-fourths in 2014 from only one-third in 2005. 

Also key, says Whalen, is a steady rise in the past five years with a leveling off in 2014 of restatements among accelerated filers. In 2009 and 2010, accelerated filers were responsible for 171 restatements, rising to 211 in 2011, 284 in 2012, and 308 in 2013. In 2014, the number held relatively steady at 309.

Whalen attributes the trend to a tendency by larger companies to churn out restatements more quickly with fewer issues per restatement. “If you find a mistake and correct it more quickly, all these trends make sense,” he says. “Part of improving internal controls is all the software companies are using. It allows you to find a mistake more quickly when you make one. It used to be a restatement would take care of a lot of separate issues. Now because they are finding issues more quickly, there might be separate restatements.”