Restatement

Sometimes a company discovers that its earlier financial statements were wrong. The cause might be a calculation error, a misapplication of accounting rules, an oversight or fraud. If the error is material, the company must correct the past figures. That correction is a restatement.

For example, a company might find that revenue from several large contracts was recognised a year too early. It would restate the previous year's accounts to move that revenue into the correct period, reducing the profit originally reported.

Restatements also happen for less troubling reasons. When a company changes an accounting policy or a new accounting standard takes effect, it usually restates comparative figures from earlier years so readers can compare periods on the same basis.

Restatements caused by errors are a serious matter for investors. They can reduce confidence in management and the reliability of financial reporting, and often lead to falls in the share price, regulatory investigations or lawsuits.

When restating, companies explain the nature of the error or change and show its effect on each affected line item in the notes to their financial statements.