We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Restatement?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 8,686
Share

A restatement is a correction or revision to the any of the accounting statements issued by a business for a specific time period. In some cases, the reason for the correction is the accidental omission of financial data, a posting error, or some other type of unintentional mistake. More commonly, the restatement becomes necessary when a deliberate attempt to cook the books or falsify financial data has taken place, and the activity has been uncovered. These methods are sometimes referred to as under the table accounting, voodoo accounting, or cookie jar accounting.

There are a number of ways that simple errors can be made in keeping accounting records, resulting in the need to issue a restatement. In some cases, the amount of a receivable or payable is transposed, or a cost is applied to an incorrect line item. Posting errors can often be identified by periodic in-house audits of the accounting records by comparing the entries with the back-up documentation for each transaction. When these errors are identified after a financial statement has been released, it is necessary to correct those errors, then prepare a revised statement that more accurately reflects the true financial condition of the company.

It is also possible that the need for a restatement comes about when deliberate attempts to misrepresent the finances of the business are discovered. These attempts, sometimes referred to as cookie jar accounting, often make use of both barely legal and illegal procedures to create the perception that a business is not making a profit when it really is doing well. These same so-called voodoo accounting practices may also be used to who the business is making a profit when the revenue generated for the period under consideration is considerably less than reported.

For example, a business may try to cook the books in an attempt to secure additional tax benefits that would not be possible if the true status of company finances were reported. In like manner, a company may arrange financial records in a way that gives potential investors the impression that the business is more solvent that it really is, and thus increase their chances of attracting new investors. Should the activity used to create these false perceptions be uncovered, steps to correct the books and present a restatement that is realistic is often part of the restitution that the company must make, along with paying any fines or penalties imposed by regulatory agencies.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
By miriam98 — On Nov 14, 2011

@NathanG - I take the opposite position. I think smaller businesses usually rely heavily on software packages to help them tabulate their income and expenses, so there should be little room for error.

Corporations have a lot more paperwork to deal with and a lot more places to put numbers down (and move them around).

By NathanG — On Nov 14, 2011

@allenJo - I agree, and I think the only situations where restatements are the result of innocent accounting mistakes are with smaller businesses.

I think with the larger corporations you have internal and external auditors to help ensure that the businesses are posting their entries properly.

With small businesses, I think anything can happen. I work for a small business myself and the boss recently fired the accountant. While he gave no explanations for why he did that, I’ve heard through the grapevine there was some funny business going on with the books.

So I guess in our case it wasn’t even an innocent mistake after all, but downright theft. But I could certainly see how smaller businesses could be prone to make mistakes.

By allenJo — On Nov 13, 2011

@hamje32 - That’s a clear case of dishonesty which necessitated restatement, like you said. But sometimes companies are forced to restate even when they are doing their best to abide by the rules.

I can tell you that in my experience, one reason for this is not the incompetence of the accountants, but the intrusion of more government regulations. It’s a fact, for example, that after Sarbanes-Oxley was passed, the number of “restatements” went up.

Why is that? Because the act imposed new regulations for internal controls. In other words, companies were finding new areas where they weren’t following all the rules. Is that a good thing or a bad thing?

I suppose that it depends on your perspective. But I think it’s worth bearing out that changes in government regulation necessitate restatement just as much as innocent errors or outright deceit.

By hamje32 — On Nov 12, 2011

I once worked for a telecom giant that gained a big reputation for cooking the books until it went down in flames, taking its CEO with it. To say that when the dust settled they needed to make a financial restatement would be an understatement.

The company went gangbusters in the late 1990s by gobbling up lots of other telecom firms. When revenue slowed, the company found that it wouldn’t be able to remain profitable. So it began getting creative, by inflating its revenue figures.

It did this by moving figures around on the books to make it look like it was making more in revenue than it was. Well, somebody tipped off the SEC and the next thing you know, the company filed for bankruptcy and the CEO was sent to jail.

It was tragic; fortunately I left just before the bottom fell out.

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-is-a-restatement.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.