Are we backsliding on financial statement quality?
The latest data from Audit Analytics about financial restatements is out, and it offers lots of interesting news that can be spun in many directions.
Overall, the macro trend remains favorable.
As noted by Compliance Week, restatements fell from 820 in 2011 to 768 in 2012. For some perspective, financial restatements peaked in 2007 at 1,213, then fell to 922 in 2008 and then to 715 in 2009 before picking up again. So we would once again appear to be heading toward a time-series trough. And that's good news.
There is perhaps less reason to loudly cheer, however, when it comes to accelerated filers, as restatements for this group have increased for a second year straight. Accelerated filers filed 158 restatements in 2010, 202 in 2011 and 245 in 2012. So what's going on?
Well, it's fair to say that economic, financial and operational burdens have imposed lots of complexity on the accountants. There are lots of tricky situations to deal with, and that might be a new source of restatements.
As an example, consider the biggest restatement of 2012: JPMorgan, which was forced to respond to the infamous London Whale "hedging" fiasco, which FierceFinance has discussed often. Indeed, according to Audit Analytics, the largest number of restatements in 2012 related to problems with debt, quasi-debt, warrants, and equity security issues. The next largest cause was problems with tax issues, followed by cash flow statement classification errors and then revenue recognition.
Al in all, the severity of the restatements seems to have diminished. There's nothing here to suggest that Sarbanes-Oxley was a colossal failure.
- here's the article