Do Firms Conceal Material Misstatements by Reporting Revisions Rather than Restatements?

Disclosure of financial reporting errors is vital to maintaining investors’ trust in the capital markets. Yet, in recent years the number of misstatements corrected in restatements of financial reports has declined dramatically, and misstatements are now more likely to be corrected in less formal revisions of those reports. Based on materiality guidance, prior years’ financial statements of firms with material misstatements are required to be restated on an 8-K filing.[1] In contrast, revisions, sometimes referred to as “little r” restatements, are considered to be immaterial to prior period financial statements and do not require an 8-K filing. In view … Read more