Restatements and Flat-out Errors

We have been writing about the growing number of restatements, although noting the decline in the number among Section 404 compliant companies.

What is the explanation for the restatements? Maybe it’s a bad thing, to have so many restatements. Apparently  the Chamber of Commerce thinks so (“There is currently an excessive number of restatements.”). 

Maybe, but that’s not the view of some from the SEC.  In comments made by Scott Taub, then the Acting Chief Accountant, he attributed a majority of the restatements to "just from flat-out errors."  Said another way, “ disclosures we reviewed that accompanied restatements over the past three years suggest that well over half of the errors that resulted in restatements were caused by ordinary books and records deficiencies or by simple misapplications of the accounting standards.” Read the speech here.  

Nor is this view unique.  Lynn Turner, the former Chief Accountant of the Commission and now with Glass Lewis, noted in a co-written piece in the December 1 issue of the CPA Journal that:  “These restatements aren’t just about revising subjective judgments or complying with esoteric, complex accounting pronouncements. In hundreds of instances, they stem from basic misapplications of simple rules or critical breakdowns in corporate controls and competencies.”

Section 404 is not just about discerning instances of fraud.  It is about financial integrity.