The resurgence of restatements - is uptick here to stay?
While financial restatements increased 7% year-over-year, the uptick is at least partially attributed to SEC enforcement activity. Changes in enforcement priorities may affect restatement trends.
Stephen Foley of the FT wrote on December 9, 2024, that public companies are correcting their financial statements in “record numbers”. Importantly, according to data from Ideagen Audit Analytics cited by FT, not only the total number of restatements is up 7% year-over-year but the number of Big R restatements – material restatements that undermine reliance on previously filed financial statements – is at 9-year high.
The phenomena of disappearing restatements puzzled me for years. Over the past decade, accounting shifted to more principle-based, with several complex, difficult-to-implement standards such as new revenue recognition (ASC 606), leases (ASC 842), and credit losses (ASC 326) standards adopted along the way. There is also an increasing complexity associated with financial instruments and novel asset classes, such as digital assets, for which limited accounting guidance exists. As if complexity wasn't enough, the accounting industry is going through a persistent shortage of …