Restatements took another downward dip in 2017, suggesting another year of incremental improvement in the quality of financial reporting, according to the newest study from Audit Analytics.

The total number of restatements declined in 2017 for the fifth consecutive year, from 873 in 2013 to 553 in 2017. The percentage of decline has reached double digits the past three years, nearly 12 percent in 2015, 10 percent in 2016, and nearly 19 percent in 2017, the report shows.

Reissuance restatements—those that are serious enough to necessitate withdrawing prior financial statements and issuing them anew—fell to 109 in 2017. That number was down from 128 in 2016 and 152 in 2015. The number has fallen steadily every year for the past 10 years, according to the report. 

Revision restatements—those in which companies corrected mistakes without withdrawing reliance on prior financials—fell to 370 in 2017, down from 467 in 2016 and 522 in 2015. That type of restatement crept upward for a few years from 2009 to 2014, but then tapered over three consecutive years.

In terms of the severity of mistakes, the newest data shows only small changes there as well. More than half of restatements, 54 percent, had no effect on net income, which is slightly down from 59 percent in 2016. Perrigo Co.’s 2017 restatement that adjusted income downward by $1.18 billion represented the most significant income event of the year, the report says.

Reissuance Restatements by Year

Restatement periods—meaning the period of time for which restatements had to be issued—also declined, from 541 in 2016 to 509 in 2017. The average number of issues that led to restatements also tapered slightly, from 1.58 in 2016 to 1.54 in 2017. 

The restatement data also shows improvement among accelerated filers, the largest companies listed on U.S. exchanges. After steady increases among accelerated filers from 2011 to 2014, when they reached 351, the numbers have since fallen to a total of 184 in 2017.

Audit Analytics has been tracking restatement data for nearly 20 years. Restatements spiked in the years following enactment of the Sarbanes-Oxley Act, which brought new discipline to the financial reporting process through its requirement to report on the effectiveness of internal control over financial reporting. In 2006, companies filed 1,859 restatements after an alarming rise to 1,632 the year before. The numbers dropped dramatically from 2006 to 2007 and then leveled off and began tapering downward in the years since.

The newest data shows the accounting for debt and quasi-debt instruments continues to represent the biggest problem area for public companies. A little more than 15 percent of all restatements arose due to accounting errors in that area. Companies are getting new rules on how to reflect financial instruments in financial statements, with a new model for reporting loan losses taking effect in 2020.

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