A restatement refers to the revision and re-release of prior financial statements. A restatement is required whenever it is found that prior financial statements contain one or more material misstatements. There are a number of reasons why misstatements occur, including the following:
- Accounting errors
- Fraudulent financial reporting
- Noncompliance with the applicable accounting framework
Businesses try to avoid restatements, since they are a public admission that an entity cannot create reliable financial statements. A common outcome of a restatement is a sudden decline in the stock price of an organization.
When a publicly-held entity must restate its financial statements, it first files a Form 8-K to notify the investment community of the situation, and then issues replacement Forms 10-Q and 10-K, as applicable.