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Restatement study will show second year of decline in 2016

Tammy Whitehouse | April 21, 2017

In a second year of incremental improvement in financial reporting after a stubborn leveling off for several years, restatements in 2016 fell by 11 percent.

The newest analysis by Audit Analytics will show the total number of restatements fell from 756 in 2015 to 671 in 2016, the lowest total number since 2002, before the Sarbanes-Oxley Act was adopted. That was the second decline following restatement numbers that held relatively constant in the mid-800s for about six years.

The annual Audit Analytics study is not yet published, but the final data will show 78.3 percent of all restatements in 2016 involved revisions to earlier financial statements rather than withdrawal and replacement of earlier statements. The research firm calls those “revision restatements” because they corrected earlier misstatements that were not serious enough to undermine reliance on those earlier financial statements.

That’s the highest ratio of revision restatements to the more serious “reissuance” restatements since such data became available in 2005 due to a change in filing requirements. The percentage of revision restatements has climbed steadily from a low of 32 percent in 2005 to 76 percent in 2014 and 2015.  

The study also will show the number of accelerated filers that disclosed restatements fell for the second year after a four-year growth spurt. From 2010 to 2014, restatements among accelerated filers climbed from 174 to 352, then tapered to 284 in 2015 and 255 in 2016.

Companies other than accelerated filers, on the other hand, have steadily chipped away at their restatement totals from 476 in 2010 to a low of 284 in 2016.

In addition to assembling data on restatement instances, the report also looks for indicators of severity, or how serious the mistakes proved to be, within the restatement population. The new report will show companies corrected an average of 1.5 mistakes with each restatement, down from 1.6 percent in 2015, and that they restated periods averaging 501 days compared to 510 the year before.

Nearly 60 percent of all restatements in 2016 had no effect on the income statement, up from 55 percent in 2015. In earlier years of the AA analysis, more restatements involved mistakes that did not affect the income statement. From 2007 to 2010, for example, the percentages ranged in the 30s, rising to 46 percent in 2012 and 52 percent in 2013.