what is a restatement 
a restatement is an act of revising one or more of a company s previous financial statements to correct an error restatements are necessary when it is determined that a previous statement contained a material inaccuracy this can result from accounting mistakes noncompliance with generally accepted accounting principles gaap fraud misrepresentation or a simple clerical error understanding restatementscompany management and independent auditors are responsible for ensuring that quarterly and annual financial statements accurately reflect the financial condition of a firm sometimes previous statements need to be amended at times these mistakes will be spotted by internal auditors on other occasions it might be a third party such as the securities and exchange commission sec that spots them the financial accounting standards board fasb requires companies to issue a restatement to correct previous errors accountants are responsible for deciding whether a past error is material enough to warrant a restatement material is a loose term that is not accompanied by specific percentage guidelines and so forth as a general rule of thumb an error can be considered material if the incorrect information would lead those receiving the statements to come to inaccurate conclusions as part of a standard analysis if an issue or error is found that affects part of a financial document or the document as a whole a restatement will likely be required additionally if certain key information about the original statement is received after the first statement was released a restatement may be issued to adjust the financials based on the discoveries the dangers of restatementsmany restatements are the result of innocent mistakes and basic misinterpretation however some can raise red flags highlighting potential fraud or incompetence over reporting a company s gains can be very misleading it can lead investors to believe the company is in a stronger financial position than is actually the case based on the inaccurate information investors may perform actions in regards to the previously made investments that otherwise would not have been made public companies must file sec form 8 k to alert the investment community of material changes as well as reissue corrected financial statements 1 negative restatements are regularly frowned on shaking investor confidence and causing share prices to decline they can also lead to fines hertz global holdings inc htz was ordered to pay a 16 million civil penalty after internal auditors discovered errors in several of its previous financial statements in 2015 the car rental company disclosed that restatements would weigh on profits for 2011 2012 and 2013 real life example of a restatementin february 2019 molson coors brewing co tap revealed it would restate its financial statements for fiscal years fy 2016 and 2017 after auditors discovered accounting blunders for income taxes related to deferred tax liabilities dtl in a filing with regulators the beer maker blamed the errors on its acquisition of a remaining 58 percent stake in millercoors in 2016 understating deferred tax liability dtl and income tax expense boosted net profits by nearly 400 million in 2016 overall the company said it understated the value of the taxes owed but not yet paid on its balance sheet by 248m and overstated its total equity by the same amount the finding did not inspire much confidence in molson coors brewing s accounting practices as reflected by the sharp subsequent markdown in the company s share price restatement requirements