The number of financial restatements rose in 2010, after three years of decline, according to a new study from Audit Analytics. The new uptick was driven by non-accelerated filers.
In addition, although the quantity increased slightly, the severity of the restatements remained low, AA stresses.
Altogether, there were 735 restatements, up more 7.6 percent from 683 the prior year. However, 2010 saw the fewest revisions since 2002.
Restatements peaked with 1795 in 2006. Altogether, there were 4560 restatements in the three-year period from 2005 through 2007.
In 2010, restatements from US accelerated filers dropped from 142 to 136. However, there was an increase in the quantity of restatements filed by non-accelerated filers. The restatements from foreign, non-accelerated filers increased from 99 to 127 and those from US, non-accelerated filers increased from 385 to 424.
Audit Analytics, however, said the severity of these restatements was comparable or lower than the prior years. When reviewing the adverse effect of the restatements filed in 2010, the firm found an equivalence or reduction in severity in every criteria quantified: the negative impact on net income, the average cumulative impact on net income per restatement, the percentage of restatements with no impact on income statements, the average number of days restated, and the average number of issues identified in the restatements.
For example, the average number of issues implicated in a restatement dropped to 1.48 issues per restatement, the lowest during the 10 years reviewed by Audit Analytics.
The average number of days that were corrected by a financial adjustment (the restatement period) also decreased. This number peaked in 2005 with a value of 744 days and decreased every year thereafter to a value of 491 average days in 2010.
AA said another indication of severity of the restatements is amount of Revision Restatements in the population. It notes the SEC requires registrants that file Form 10-Ks to disclose a determination that past financial statements should no longer be relied upon. This disclosure requirements became effective in 2004 and the disclosure is to appear in Item 4.02 of an 8-K.
In 2010, Revision Restatements were 52.85 percent of the restatement disclosures. AA said this figure contributed to the drop in the average number of days a company needed to investigate and calculate a restatement, to about five days in 2010. .
Audit Analytics said all these factors appear to be a positive manifestation of improved internal controls over financial reporting (ICFRs) adopted under the Sarbanes Oxley Act. "The improved ICFRs not only increased the accuracy and reliability of more corporate financial disclosures, but gave companies the tools needed to quickly identify and correct accounting errors when they nevertheless arose," the firm stated in its report.