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Academic literature on the topic 'Financial Restatements'

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Published: 4 June 2021
Last updated: 20 February 2023

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Journal articles on the topic "Financial Restatements"

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Adams, John C., Darren K. Hayunga, and Stephanie J. Rasmussen. "The Restating of Financial Statements by REITs." Journal of Accounting, Auditing & Finance 32, no. 3 (October 13, 2015): 350–71. http://dx.doi.org/10.1177/0148558x15607748.

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This article is the first to examine financial restatements by real estate investment trusts (REITs). We provide a descriptive breakdown of the underlying causes of REIT restatements as well as overall and subsample analyses of stock market reactions to restatements from 2000 to 2011. REIT restatements occur for a large variety of accounting issues with the most common being expense-related (e.g., leases, depreciation). We find that the average market reaction for REIT restatements is negative 0.63%, which is less negative than non-REIT restatements. Further investigation reveals that a significant portion of REIT restatements result in large positive or negative returns, the most extreme of which appear to be a result of both the restatement and other news released simultaneously. Cross-sectional analysis shows that the most important determinant of restatement cumulative abnormal returns (CARs) is whether the restatement is a result of Securities and Exchange Commission (SEC) comment letters or involves an investigation by regulators, which lowers the CAR by 5.64%. Overall, the findings suggest that REIT restatements occur for a variety of reasons, and REIT investors place high value on quality financial statements.
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Wu, Peng, Lei Gao, Zhibin Chen, and Xiao Li. "Managing reputation loss in China: in-depth analyses of financial restatements." Chinese Management Studies 10, no. 2 (June 6, 2016): 312–45. http://dx.doi.org/10.1108/cms-12-2015-0275.

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Purpose This paper aims to investigate, in China stock market, whether the reputation loss of a firm caused by financial restatements will lead to significant economic consequences such as financial distress and how a firm should respond to such a crisis. Design/methodology/approach This paper uses Chinese A-share listed firms from 2004 to 2013 as research samples to test research hypotheses using regression analyses. Findings This paper finds a significant relationship between restatements and financial distress, and such a relationship will be affected by both the type and the magnitude of restatements. More importantly, we find joint effects of restatements and state ownership on financial distress, which provides a unique contribution to the extant literature in restatement, financial distress and crisis management using Chinese stock markets data. It shows that ownership structure, affecting the firm reputation and crisis responses strategies, plays a significant role in consequences of restatements, and it is more important for state-owned enterprises (SOEs) to undertake an appropriate crisis response strategy to reduce the negative impact of restatements. Practical implications The results suggest that the damage to a firm’s reputation caused by restatements is affected by restatement type and state ownership. To reduce the negative consequences and avoid financial distress, firms should consider both the restatement type and their firm characteristics when deciding different actions to respond to restatements. In particular, SOEs should act in a more timely manner and take reputation-rebuilding actions such as taking the responsibility and making apologies and taking prompt remedial actions after restatements to regain the public trust and avoid more serious economic consequences. The Chinese government should strengthen their supervisions of SOEs and put more effort to help SOEs reduce administrative procedures, and to improve the efficiency of the implementation of recovery plans after restatements to reinstate firm credibility. Originality/value First, this paper is among the first to link financial restatement, including the type and magnitude of restatements, with financial distress, and the authors find a significant relationship between restatement type and financial distress in China stock markets. Second, this paper is the first to examine whether there is a joint effect of state ownership and restatements on financial distress. Third, this study examines how the magnitude and pervasiveness of restatements influence financial distress and find that both result in an increase of financial distress. Finally, this paper is among the first to connect crisis management and accounting literature to explain how a reputation loss caused by financial restatement may damage a firm’s value and subsequent performance, and based on which to suggest crisis-responses strategies.
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Qiu, Shi, Hong-Qu He, and Yuan-sheng Luo. "THE VALUE OF RESTATEMENT TO FRAUD PREDICTION." Journal of Business Economics and Management 20, no. 6 (October 14, 2019): 1210–37. http://dx.doi.org/10.3846/jbem.2019.10489.

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A financial report restatement reflects errors in the previous financial statement, and thus it increases investors’ doubt about the credibility of the financial statement. The primary objective of this paper is to examine whether restatement announcements imply increased fraud risks in Chinese firms in the context that up to one quarter of listed companies have restated their financial reports in China, and explore the implications of the content, severity and reasons for restatements with respect to fraud. In this paper, firms with financial restatements prove to be more likely to be labeled as fraudulent by regulators in China. Second, the following results also are revealed: (1) financial statements, except balance sheet restatements, provide insights into the revelation of fraudulent behaviors, (2) the severity of restatements is positively correlated with future fraud disclosures, and (3) restatements due to negligence are positively correlated with future fraud occurrences. These results imply that restatement announcements and their different characteristics provide important information for detecting financial statement fraud.
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Mande, Vivek, and Myungsoo Son. "Do Financial Restatements Lead to Auditor Changes?" AUDITING: A Journal of Practice & Theory 32, no. 2 (December 1, 2012): 119–45. http://dx.doi.org/10.2308/ajpt-50362.

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SUMMARY: This paper examines whether financial restatements are associated with subsequent auditor changes. A financial restatement represents a breakdown in a company's financial reporting, but, importantly, also of its audit. We argue that in response to pressure from capital markets, restating firms will dismiss their auditors to increase audit quality and restore reputational capital lost when the restatements are announced to the investing public. Using a large sample of restatements and auditor changes we find that, consistent with our hypothesis, the likelihood of auditor-client realignments increases after firms announce restatements. As expected, we also find that the positive association between restatements and auditor turnovers is more pronounced when restatements are more severe and the quality of corporate governance is high. Finally, we find that stock market returns surrounding auditor changes increase as the severity of restatements increases. The last result supports the idea that stock markets have a positive view of auditor changes following restatements. Data Availability: Data are publicly available from sources identified in the paper.
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Wei, Jo Ting. "The association between mandatory financial restatements and the turnover of firm executives." Corporate Ownership and Control 6, no. 1-4 (2008): 467–74. http://dx.doi.org/10.22495/cocv6i1c4p6.

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Prior studies have examined the relationship between financial restatements and the turnover of firm executives and find that financial restatements lead to the turnover of firm executives. They often concern the above effects in developed countries such as America rather than those in developing countries. Besides, financial restatements externally prompted are more serious. However, past research little explores this type of financial restatement. Therefore, this study aims to examine the association between mandatory financial restatements and the turnover of firm executives—the chairman and the CEO in Taiwan. The findings show that there is positive relationship between mandatory financial restatements and the turnover of the CEO. However, we do not find there is positive association between mandatory financial restatements and the turnover of the chairman. The implications are as follows. As the CEO has power to make firm major decisions, including financial reporting, he should be responsible for financial restatements. The chairman is the leader of a firm. Replacing the chairman may significantly affect firm normal operation. Hence, firms are not easily to replace the chairman unless there is concrete evidence showing that he should be responsible for the financial restatements.
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Qasem, Ameen, Norhani Aripin, and Wan Nordin Wan Hussin. "A DESCRIPTIVE ANALYSIS OF FINANCIAL RESTATEMENTS IN MALAYSIA." International Journal of Service Management and Sustainability 2, no. 2 (March 2, 2020): 92. http://dx.doi.org/10.24191/ijsms.v2i2.8073.

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This study provides an overview of the issue of financial restatements among Malaysianpublic listed companies by investigating the trend and reasons for financial restatementsfor the period beginning 2005 through to 2014. Based on the Thompson Reuters DataStream database which provides restatement data for 915 Malaysian companies (9,150 company-year observations), detailed analysis shows that there is a total of 1,945 (21.26%) restatements occurring during the period. The highest number of restatement occurrences was in 2010 with 342 cases (17.58%) while the lowest was in 2008 with 41 cases (2.11%). The majority of restatement cases occurred due to changes in accounting policies with more than 75% of financial restatement cases found within four sectors: industrial products, trading and services, consumer products, and technology. The results of the study will be useful to regulating bodies such as Bursa Malaysia, Securities Commission and Malaysian Accounting Standard Board in as much as they highlight the trend and reasons for financial restatements among Malaysian public listed companies. Further investigation could be conducted for companies that regularly change their accounting policies.
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Huang, Ying, and Susan Scholz. "Evidence on the Association between Financial Restatements and Auditor Resignations." Accounting Horizons 26, no. 3 (May 1, 2012): 439–64. http://dx.doi.org/10.2308/acch-50200.

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SYNOPSIS Financial restatements have significant implications for auditor-client relationships. We estimate that a restatement increases the odds of an auditor resignation dramatically. Restatements involving fraud, reversing profit to loss, and those disclosed in press releases appear to drive the increased resignation likelihood. Furthermore, companies with relatively severe restatements are more likely to hire smaller auditors following a resignation. Collectively, these results are consistent with auditors interpreting restatements as an indication of increased client risk. Data Availability: The data used in this study are available from public sources identified in the text.
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Wilson, Wendy M. "An Empirical Analysis of the Decline in the Information Content of Earnings Following Restatements." Accounting Review 83, no. 2 (March 1, 2008): 519–48. http://dx.doi.org/10.2308/accr.2008.83.2.519.

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Regulatory officials and market analysts have speculated that the loss of credibility in subsequently reported financial information is a long-lasting consequence of earnings restatements. I measure the information content of earnings using a standard earnings-returns framework over several years surrounding restatements to examine characteristics of the decline in the information content of earnings. Results indicate that although the information content of earnings declines following restatements, the loss is temporary. In particular, the earnings response coefficients for earnings announcements surrounding restatements exhibit a U-shaped pattern in which they are no longer significantly lower in the post-restatement period over an average of four quarters. The extent to which the earnings of restatement firms suffer a loss of information content varies across several dimensions. First, the duration of the loss is greater for firms that restate earnings to correct revenue recognition errors and for restatements that result in a large decline in the stock price at the announcement date. Second, there is not a loss in the information content of earnings for firms that make changes to their financial reporting governance structures following restatements. Overall, the evidence in this paper is consistent with a short-term decline in investor confidence regarding financial reporting following restatements, but shows that suspicion regarding the information loss of post-restatement earnings in the long-term is unwarranted.
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Ettredge, Michael, Ying Huang, and Weining Zhang. "Restatement Disclosures and Management Earnings Forecasts." Accounting Horizons 27, no. 2 (February 1, 2013): 347–69. http://dx.doi.org/10.2308/acch-50414.

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SYNOPSIS We examine the impact of financial restatements on managers' subsequent earnings forecasts. We argue that restatements create conflicting incentives. One incentive is to repair manager reputations as information providers by providing more and better guidance via earnings forecasts. The opposing incentive is to avoid risk by reducing the information in forecasts. We find that compared to control firms, restatement companies exhibit a decreased propensity to issue quarterly earnings forecasts following restatements. Those that do make forecasts issue fewer forecasts in post-restatement periods. We also find that post-restatement forecasts are less precise, and are less optimistically biased. Overall, our results suggest that, rather than increasing voluntary disclosure in the form of forecasts, managers of restatement companies exhibit risk-averting forecasting behavior following restatements.
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Fragoso, João L. F. R., Rúben M. T. Peixinho, Luís M. S. Coelho, and Inna C. S. Paiva. "The impact of financial restatements on financial markets: a systematic review of the literature." Meditari Accountancy Research 28, no. 6 (May 2, 2020): 1119–47. http://dx.doi.org/10.1108/medar-05-2019-0482.

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Purpose The purpose of this paper is to discuss the most relevant issues related to the impact of financial restatements in the dynamics of financial markets and identify several research gaps to be investigated in future research. Design/methodology/approach The methodology is based on a systematic review of the literature described by Tranfield et al. (2003). The final sample includes 47 academic papers published from 1996 to 2019. Findings Papers in this domain discuss three main topics: how the market prices the announcement of a financial restatement; how financial restatements affect the announcing firm’s cost of capital and how financial restatements affect firms’ reputation. There are several issues to explore in future research, including whether financial restatements affect the dynamics of financial markets in Europe, whether the market fully and promptly assimilates the information content of a restatement, the role of financial analysts’ information disclosures in this process or how regulators may improve the way they provide investors with timely information about firms’ restating problems. Research limitations/implications There is always some degree of subjectivity in the definition of the keywords, search strings and selection criteria in a systematic review. These are all important aspects, as they delimitate the scope of the study and define the sample of papers to be reviewed. Practical implications The answers to the research questions identified in this paper may provide regulators with information to improve financial accounting and reporting standards and strengthen investors’ confidence in accounting information and the dynamics of financial markets. Originality/value This paper systematically reviews the relevant literature exploring the connection between financial restatements and the dynamics of financial markets. It contributes to the academic community by identifying several research questions that may impact the theory and practice related to accounting quality and capital markets.
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Dissertations / Theses on the topic "Financial Restatements"

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Dutta, Ila. "Data Mining Techniques to Identify Financial Restatements." Thesis, Université d'Ottawa / University of Ottawa, 2018. http://hdl.handle.net/10393/37342.

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Data mining is a multi-disciplinary field of science and technology widely used in developing predictive models and data visualization in various domains. Although there are numerous data mining algorithms and techniques across multiple fields, it appears that there is no consensus on the suitability of a particular model, or the ways to address data preprocessing issues. Moreover, the effectiveness of data mining techniques depends on the evolving nature of data. In this study, we focus on the suitability and robustness of various data mining models for analyzing real financial data to identify financial restatements. From data mining perspective, it is quite interesting to study financial restatements for the following reasons: (i) the restatement data is highly imbalanced that requires adequate attention in model building, (ii) there are many financial and non-financial attributes that may affect financial restatement predictive models. This requires careful implementation of data mining techniques to develop parsimonious models, and (iii) the class imbalance issue becomes more complex in a dataset that includes both intentional and unintentional restatement instances. Most of the previous studies focus on fraudulent (or intentional) restatements and the literature has largely ignored unintentional restatements. Intentional (i.e. fraudulent) restatements instances are rare and likely to have more distinct features compared to non-restatement cases. However, unintentional cases are comparatively more prevalent and likely to have fewer distinct features that separate them from non-restatement cases. A dataset containing unintentional restatement cases is likely to have more class overlapping issues that may impact the effectiveness of predictive models. In this study, we developed predictive models based on all restatement cases (both intentional and unintentional restatements) using a real, comprehensive and novel dataset which includes 116 attributes and approximately 1,000 restatement and 19,517 non-restatement instances over a period of 2009 to 2014. To the best of our knowledge, no other study has developed predictive models for financial restatements using post-financial crisis events. In order to avoid redundant attributes, we use three feature selection techniques: Correlation based feature subset selection (CfsSubsetEval), Information gain attribute evaluation (InfoGainEval), Stepwise forward selection (FwSelect) and generate three datasets with reduced attributes. Our restatement dataset is highly skewed and highly biased towards non-restatement (majority) class. We applied various algorithms (e.g. random undersampling (RUS), Cluster based undersampling (CUS) (Sobhani et al., 2014), random oversampling (ROS), Synthetic minority oversampling technique (SMOTE) (Chawla et al., 2002), Adaptive synthetic sampling (ADASYN) (He et al., 2008), and Tomek links with SMOTE) to address class imbalance in the financial restatement dataset. We perform classification employing six different choices of classifiers, Decision three (DT), Artificial neural network (ANN), Naïve Bayes (NB), Random forest (RF), Bayesian belief network (BBN) and Support vector machine (SVM) using 10-fold cross validation and test the efficiency of various predictive models using minority class recall value, minority class F-measure and G-mean. We also experiment different ensemble methods (bagging and boosting) with the base classifiers and employ other meta-learning algorithms (stacking and cost-sensitive learning) to improve model performance. While applying cluster-based undersampling technique, we find that various classifiers (e.g. SVM, BBN) show a high success rate in terms of minority class recall value. For example, SVM classifier shows a minority recall value of 96% which is quite encouraging. However, the ability of these classifiers to detect majority class instances is dismal. We find that some variations of synthetic oversampling such as ‘Tomek Link + SMOTE’ and ‘ADASYN’ show promising results in terms of both minority recall value and G-mean. Using InfoGainEval feature selection method, RF classifier shows minority recall values of 92.6% for ‘Tomek Link + SMOTE’ and 88.9% for ‘ADASYN’ techniques, respectively. The corresponding G-mean values are 95.2% and 94.2% for these two oversampling techniques, which show that RF classifier is quite effective in predicting both minority and majority classes. We find further improvement in results for RF classifier with cost-sensitive learning algorithm using ‘Tomek Link + SMOTE’ oversampling technique. Subsequently, we develop some decision rules to detect restatement firms based on a subset of important attributes. To the best of our knowledge, only Kim et al. (2016) perform a data mining study using only pre-financial crisis restatement data. Kim et al. (2016) employed a matching sample based undersampling technique and used logistic regression, SVM and BBN classifiers to develop financial restatement predictive models. The study’s highest reported G-mean is 70%. Our results with clustering based undersampling are similar to the performance measures reported by Kim et al. (2016). However, our synthetic oversampling based results show a better predictive ability. The RF classifier shows a very high degree of predictive capability for minority class instances (97.4%) and a very high G-mean value (95.3%) with cost-sensitive learning. Yet, we recognize that Kim et al. (2016) use a different restatement dataset (with pre-crisis restatement cases) and hence a direct comparison of results may not be fully justified. Our study makes contributions to the data mining literature by (i) presenting predictive models for financial restatements with a comprehensive dataset, (ii) focussing on various datamining techniques and presenting a comparative analysis, and (iii) addressing class imbalance issue by identifying most effective technique. To the best of our knowledge, we used the most comprehensive dataset to develop our predictive models for identifying financial restatement.
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Sofilkanitsch, Christian [Verfasser]. "Non-GAAP reporting around financial restatements / Christian Sofilkanitsch." Paderborn : Universitätsbibliothek, 2020. http://d-nb.info/1211392066/34.

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Brandt, Johnny. "The Presence of Collateral Damage in Financial Restatements and its impact on Securities Litigation." Scholarship @ Claremont, 2018. http://scholarship.claremont.edu/cmc_theses/1922.

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The purpose of this study is to examine financial reporting restatements for the presence of collateral damage in the market’s reaction. Collateral damage is an assessment of investors’ perception of management credibility and a company’s internal controls. Past research indicates the market reaction displays irrational tendencies following a restatement of earnings. In the legal world, the presence of irrational behavior in the capital markets protects corporations from the efficient market hypothesis in damages estimates. I find a high level of market reaction to be unexplained by cash flow disclosures within the restatement. Though my results do not recognize all the sources of collateral damage at a highly significant level, the data does suggest some inefficient market behavior. When the proportion of the total restatement amount/ market capitalization is held constant, small firms are far more negatively impacted than large firms. In addition, companies are punished in the capital markets for providing additional information to the investors regarding disclosure. My conclusion is that the U.S. federal courts should not continue to rely exclusively on the efficient market hypothesis in determining damages amounts because of the prevalence in collateral damage following corrective disclosures.
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Avila, Kimberly Louise. "Real Earnings Management and Financial Restatements in the Post-Sox Era." Thesis, The University of Arizona, 2010. http://hdl.handle.net/10150/146865.

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Hogan, Brian. "Does the Market Know? Evidence from Managerial (Non-) Reporting of Financial Stealth Restatements." Case Western Reserve University School of Graduate Studies / OhioLINK, 2009. http://rave.ohiolink.edu/etdc/view?acc_num=case1220044485.

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Hogan, Brian R. "Does the market know? evidence from managerial (non-) reporting of financial stealth restatements /." online version, 2009. http://rave.ohiolink.edu/etdc/view.cgi?acc%5Fnum=case1220044485.

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Liu, Yue. "Does institutional investor composition influence managerial myopia? : the case of accounting restatements /." view abstract or download file of text, 2006. http://proquest.umi.com/pqdweb?did=1192184781&sid=2&Fmt=2&clientId=11238&RQT=309&VName=PQD.

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Thesis (Ph. D.)--University of Oregon, 2006.
Typescript. Includes vita and abstract. Includes bibliographical references (leaves 63-65). Also available for download via the World Wide Web; free to University of Oregon users.
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Sharma, Vineeta Divesh, and N/A. "The Effects of Independent Audit Committee Member Characteristics and Auditor Independence on Financial Restatements." Griffith University. Department of Accounting, Finance and Economics, 2006. http://www4.gu.edu.au:8080/adt-root/public/adt-QGU20071108.143642.

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The U.S. Securities and Exchange Commission (SEC) continues to reform the corporate governance mechanisms in order to improve the quality of financial reporting and thus, enhance the confidence of investors in the stock market and in the accounting profession. Despite the efforts of the SEC, financial reporting scandals continue with record numbers of financial restatements documented by the General Accounting Office. A financial restatement is a correction of a previously misstated financial statement. There is a small volume of literature examining the effects of corporate governance mechanisms on financial restatements. The results of these studies however, are mixed and possibly explained by their narrow focus and omitted variables that could influence the effectiveness of audit committees. Consequently, this study examines the effects of independent audit committee member characteristics and auditor independence on financial restatements. Specifically, this study investigates the relationship between the likelihood of financial restatements and: (1) the expertise of the independent audit committee members, (2) the expertise and diligence of the independent audit committee members, (3) the reputation of the independent audit committee members, (4) the interaction effect of expertise, diligence and reputation, (5) the tenure of the independent audit committee members, and (6) the cash compensation paid to independent audit committee members. Prior studies have not investigated some of these variables or the interaction effects of independent audit committee member characteristics on financial restatements. This study also investigates the association between auditor independence and financial restatements. The SEC alleges that an increasing number of audit failures are due to the lack of auditor independence. One of the major sources of the lack of auditor independence is the auditor’s economic dependency on the client. The provision of non-audit services increases the financial reliance of the auditor on the client. As a result, the auditor may become reluctant to raise issues with the preparation of the financial statements at the risk of foregoing the lucrative non-audit services fees. The SEC believes that longer audit firm tenure can also impair auditor independence and Section 203 of the Sarbanes-Oxley Act suggests periodic audit firm rotation. Therefore, auditor independence was measured as: (1) fees paid to the auditor, and (2) audit firm tenure. Finally, this study extends the prior literature by studying the interaction effects of independent audit committee member characteristics and auditor independence on financial restatements. This interaction effect is important because the external auditor and the audit committee are regarded vital governance mechanisms that interact and exchange dialogue in the performance of their respective oversight of the financial reporting process. Prior research has not investigated this important interaction effect. The sample of the study comprises 69 U.S. publicly listed companies that announced their restatement from 1 January 2001 to 31 December 2002. These companies were matched with 69 non-restatement companies based on industry and size. The data for the study is derived from SEC filings such as Form 10-K and DEF 14A, and Compustat. The univariate results show that compared to restatement firms, non-restatement firms generally have effective audit committee characteristics. The audit committees of non-restatement firms have members who are experts, diligent, reputable and appropriately compensated. They also pay lower non-audit services and total fees, and have audit firms with longer tenure. The multivariate results show that after controlling for other governance structures and firm specific non-governance variables, the likelihood of financial restatements is related to independent audit committee member characteristics and auditor independence. Specifically, the likelihood of financial restatements decreases when independent audit committee members are: (1) experts, (2) experts and diligent, (3) reputable, (4) experts, diligent and reputable, and (5) appropriately compensated. The audit committee member tenure variable is insignificant. In relation to the auditor independence variables, the multivariate results show that the likelihood of financial restatements increases when the non-audit services and total fees generated by the client are higher. On the other hand, the likelihood of financial restatements decreases when audit firm tenure is longer. The empirical results of this study suggest that independent audit committees are more effective overseers of the corporate financial reporting and auditing processes when: they comprise majority experts, they meet regularly, their members are reputable, and audit committee members are appropriately compensated. On the other hand, external auditors are not deemed to be effective overseers of the corporate financial reporting process when the non-audit services and total fees generated by the client are higher but are effective when audit firm tenure is long. The results support the SEC’s concerns regarding the provision of non-audit services impairing auditor independence. The results also support the Sarbanes-Oxley Act of 2002 which under Section 201 prohibits external auditors from providing certain non-audit services to its audit client. Overall, these results support the regulatory efforts to increase the quality of financial reporting by enhancing the corporate governance process related to audit committees and auditor independence. However, the results do not support calls to limit the tenure of the auditor. The results of the multivariate interaction effects suggest that, after controlling for other governance structures and firm specific non-governance variables, when the non-audit services and total fees generated by the client are higher, the likelihood of financial restatements increases under conditions when the audit committee is not effective (a non expert audit committee, an audit committee that does not meet regularly, an audit committee whose members are not reputable or an audit committee that is not appropriately compensated). The implication of this result is that it provides evidence of conditions under which restatements take place. Knowledge of such conditions could aid regulators further improve the financial reporting process and corporate governance. This knowledge will support regulators in revising policies that ensure audit committee members are not only independent but also comprise other critical qualities. These improvements to the audit committee coupled with the existing regulations on the provision of non-audit services suggest a company’s governance will be more effective. Overall, the results extend current knowledge in the sparse but growing literature related to financial restatements and corporate governance, and extend our understanding of the effectiveness and interaction of governance mechanisms in reducing financial restatements.
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Sharma, Vineeta Divesh. "The Effects of Independent Audit Committee Member Characteristics and Auditor Independence on Financial Restatements." Thesis, Griffith University, 2006. http://hdl.handle.net/10072/366715.

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The U.S. Securities and Exchange Commission (SEC) continues to reform the corporate governance mechanisms in order to improve the quality of financial reporting and thus, enhance the confidence of investors in the stock market and in the accounting profession. Despite the efforts of the SEC, financial reporting scandals continue with record numbers of financial restatements documented by the General Accounting Office. A financial restatement is a correction of a previously misstated financial statement. There is a small volume of literature examining the effects of corporate governance mechanisms on financial restatements. The results of these studies however, are mixed and possibly explained by their narrow focus and omitted variables that could influence the effectiveness of audit committees. Consequently, this study examines the effects of independent audit committee member characteristics and auditor independence on financial restatements. Specifically, this study investigates the relationship between the likelihood of financial restatements and: (1) the expertise of the independent audit committee members, (2) the expertise and diligence of the independent audit committee members, (3) the reputation of the independent audit committee members, (4) the interaction effect of expertise, diligence and reputation, (5) the tenure of the independent audit committee members, and (6) the cash compensation paid to independent audit committee members. Prior studies have not investigated some of these variables or the interaction effects of independent audit committee member characteristics on financial restatements. This study also investigates the association between auditor independence and financial restatements. The SEC alleges that an increasing number of audit failures are due to the lack of auditor independence. One of the major sources of the lack of auditor independence is the auditor’s economic dependency on the client. The provision of non-audit services increases the financial reliance of the auditor on the client. As a result, the auditor may become reluctant to raise issues with the preparation of the financial statements at the risk of foregoing the lucrative non-audit services fees. The SEC believes that longer audit firm tenure can also impair auditor independence and Section 203 of the Sarbanes-Oxley Act suggests periodic audit firm rotation. Therefore, auditor independence was measured as: (1) fees paid to the auditor, and (2) audit firm tenure. Finally, this study extends the prior literature by studying the interaction effects of independent audit committee member characteristics and auditor independence on financial restatements. This interaction effect is important because the external auditor and the audit committee are regarded vital governance mechanisms that interact and exchange dialogue in the performance of their respective oversight of the financial reporting process. Prior research has not investigated this important interaction effect. The sample of the study comprises 69 U.S. publicly listed companies that announced their restatement from 1 January 2001 to 31 December 2002. These companies were matched with 69 non-restatement companies based on industry and size. The data for the study is derived from SEC filings such as Form 10-K and DEF 14A, and Compustat. The univariate results show that compared to restatement firms, non-restatement firms generally have effective audit committee characteristics. The audit committees of non-restatement firms have members who are experts, diligent, reputable and appropriately compensated. They also pay lower non-audit services and total fees, and have audit firms with longer tenure. The multivariate results show that after controlling for other governance structures and firm specific non-governance variables, the likelihood of financial restatements is related to independent audit committee member characteristics and auditor independence. Specifically, the likelihood of financial restatements decreases when independent audit committee members are: (1) experts, (2) experts and diligent, (3) reputable, (4) experts, diligent and reputable, and (5) appropriately compensated. The audit committee member tenure variable is insignificant. In relation to the auditor independence variables, the multivariate results show that the likelihood of financial restatements increases when the non-audit services and total fees generated by the client are higher. On the other hand, the likelihood of financial restatements decreases when audit firm tenure is longer. The empirical results of this study suggest that independent audit committees are more effective overseers of the corporate financial reporting and auditing processes when: they comprise majority experts, they meet regularly, their members are reputable, and audit committee members are appropriately compensated. On the other hand, external auditors are not deemed to be effective overseers of the corporate financial reporting process when the non-audit services and total fees generated by the client are higher but are effective when audit firm tenure is long. The results support the SEC’s concerns regarding the provision of non-audit services impairing auditor independence. The results also support the Sarbanes-Oxley Act of 2002 which under Section 201 prohibits external auditors from providing certain non-audit services to its audit client. Overall, these results support the regulatory efforts to increase the quality of financial reporting by enhancing the corporate governance process related to audit committees and auditor independence. However, the results do not support calls to limit the tenure of the auditor. The results of the multivariate interaction effects suggest that, after controlling for other governance structures and firm specific non-governance variables, when the non-audit services and total fees generated by the client are higher, the likelihood of financial restatements increases under conditions when the audit committee is not effective (a non expert audit committee, an audit committee that does not meet regularly, an audit committee whose members are not reputable or an audit committee that is not appropriately compensated). The implication of this result is that it provides evidence of conditions under which restatements take place. Knowledge of such conditions could aid regulators further improve the financial reporting process and corporate governance. This knowledge will support regulators in revising policies that ensure audit committee members are not only independent but also comprise other critical qualities. These improvements to the audit committee coupled with the existing regulations on the provision of non-audit services suggest a company’s governance will be more effective. Overall, the results extend current knowledge in the sparse but growing literature related to financial restatements and corporate governance, and extend our understanding of the effectiveness and interaction of governance mechanisms in reducing financial restatements.
Thesis (PhD Doctorate)
Doctor of Philosophy (PhD)
Department of Accounting, Finance and Economics
Griffith Business School
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Blyzniuk, Charles H. "Incipe denuo: The Effect of Restatements on Credit Rating and Credit Default Swap Price." Scholarship @ Claremont, 2013. http://scholarship.claremont.edu/cmc_theses/801.

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This paper seeks to investigate the reaction of credit ratings and credit markets in response to accounting restatements. Accounting restatements can often be perceived as a precursor to fraudulent activity, which could lead to a more negative credit rating, or a heightened credit default swap (CDS) price. CDS prove to be a useful measuring tool as they adjust to changes relatively quickly; much more quickly than the assessment of a credit rating agency. My results suggest that restatements do indeed have an effect on credit rating. It does, however take longer for credit ratings to be updated after the restatement, but CDS quotes move faster and are just as, if not more accurate. I also find that credit default swaps do not anticipate restatements, showing that while the credit markets are beating the rating agencies, they do not appear to be beating the accountants.
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Books on the topic "Financial Restatements"

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Office, General Accounting. Financial statement restatements: Trends, market impacts, regulatory responses, and remaining challenges : report to the Chairman, Committee on Banking, Housing and Urban Affairs, U.S. Senate. Washington, D.C: United States General Accounting Office, 2002.

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Riding a tiger without being eaten: How companies and analysts tame financial restatements and influence corporate reputation. [Rotterdam]: Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam, 2009.

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United States. Government Accountability Office. Financial restatements: Update of public company trends, market impacts, and regulatory enforcement activities : report to the Ranking Minority Member, Committee on Banking Housing, and Urban Affairs, U.S. Senate. Washington, D.C: GAO, 2006.

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United States. Government Accountability Office. Financial restatement database: [report to] the Honorable Paul S. Sarbanes, Ranking Minority Member, Committee on Banking, Housing, and Urban Affairs, United States Senate. Washington, D.C: GAO, 2006.

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2014 GAAP Guide: Restatement and analysis of current FASB standards and other current FASB, EITF, and AICPA announcements. Chicago: CCH, Inc., 2013.

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Roy, Goode, Kronke Herbert, and McKendrick Ewan. Transnational Commercial Law. Oxford University Press, 2015. http://dx.doi.org/10.1093/law/9780198735441.001.0001.

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This work focuses on the products and processes of the harmonisation of the law relating to international commercial transactions. After examining the nature and sources of transnational commercial law, the institutions involved and aspects of the conflict of laws, international law and comparative law, the book examines key features of a range of international instruments(international conventions, model laws, contractually incorporated institutional rules and scholarly restatements) relating to different types of cross-border commercial transaction. It concludes with chapters on transnational insolvency, international dispute resolution and recurrent issues of harmonisation. The issues are illustrated with extracts from the work of leading scholars, past and present, and from judicial decisions. This edition has been revised and incorporates four additional chapters dealing with regional harmonisation, carriage of goods by sea, transactions in securities and the relationship between international conventions and national law, including complex issues of treaty implementation. Other chapters deal with international sales, agency, documentary credits and demand guarantees, financial leasing, receivables financing and international interests in mobile equipment (aircraft objects, railway rolling stock, and space assets).
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Book chapters on the topic "Financial Restatements"

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Jenkins, Nicole Thorne. "The Contagion Effects of Accounting Restatements: A Summary." In Financial Contagion, 383–90. Hoboken, NJ, USA: John Wiley & Sons, Inc., 2011. http://dx.doi.org/10.1002/9781118267646.ch45.

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Zhang, Guiling. "Determinants of Financial Restatements in the Listed Companies in China." In Advances in Intelligent and Soft Computing, 725–30. Berlin, Heidelberg: Springer Berlin Heidelberg, 2012. http://dx.doi.org/10.1007/978-3-642-27708-5_100.

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Saraswati, R. S., and W. A. Inawati. "Does corporate governance affect financial restatement?" In Acceleration of Digital Innovation & Technology towards Society 5.0, 436–41. London: Routledge, 2022. http://dx.doi.org/10.1201/9781003222927-64.

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Zhou, Bing, and Qian Zhang. "Empirical Test the Province and Industry Differences of Financial Restatement in China." In Proceedings of 2013 4th International Asia Conference on Industrial Engineering and Management Innovation (IEMI2013), 907–15. Berlin, Heidelberg: Springer Berlin Heidelberg, 2013. http://dx.doi.org/10.1007/978-3-642-40060-5_87.

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Niu, Xiaoyan, and Yuping Jia. "Research on Financial Restatement of Listed Companies in China—Based on Internal Control and Risk Management Database (DIB)." In Lecture Notes in Computer Science, 196–207. Cham: Springer Nature Switzerland, 2022. http://dx.doi.org/10.1007/978-3-031-18158-0_14.

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Gondhalekar, Vijay, Mahendra Joshi, and Marie McKendall. "Short- and Long-Term Share Price Reaction to Announcements of Financial Restatements." In Advances in Financial Economics, 149–72. Emerald Group Publishing Limited, 2012. http://dx.doi.org/10.1108/s1569-3732(2012)0000015008.

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Wokukwu, Kingsley. "Sarbanes Oxley Act: The Unintended Consequences and Financial Restatements." In Current Aspects in Business, Economics and Finance Vol. 2, 117–28. Book Publisher International (a part of SCIENCEDOMAIN International), 2022. http://dx.doi.org/10.9734/bpi/cabef/v2/6613f.

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"The Financial Instability Hypothesis: A Restatement." In Can It Happen Again?, 124–51. Routledge, 2016. http://dx.doi.org/10.4324/9781315625607-12.

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LaGore, William D., Lois S. Mahoney, and Linda Thorne. "Financial Restatement, Corporate Social Responsibility, and CEO Compensation." In Research on Professional Responsibility and Ethics in Accounting, 101–26. Emerald Group Publishing Limited, 2011. http://dx.doi.org/10.1108/s1574-0765(2011)0000015007.

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Maravelaki, Antonia, Constantin Zopounidis, Christos Lemonakis, and Ioannis Passas. "Corporate Governance as a Tool for Fraud Mitigation." In Machine Learning Applications for Accounting Disclosure and Fraud Detection, 1–15. IGI Global, 2021. http://dx.doi.org/10.4018/978-1-7998-4805-9.ch001.

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Financial fraud through the falsification of financial statements is an evident problem. The restatement is enormous, and there have been developed many approaches to confront it. Profits manipulation has reached alarming proportions worldwide. The tendency of management to present a misleading image based on accounting weaknesses and gaps, to present accounting results as it wishes and not as it should according to the accounting standards, is essentially a key feature of profit manipulation. The executives' motives to falsify financial results and creative accounting practices have concerned researchers and their efforts to identify the necessary changes and improvements in accounting systems to protect the stakeholders and the public from misleading information.
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Conference papers on the topic "Financial Restatements"

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Klassen, Gerhard, Martha Tatusch, Weisong Huo, and Stefan Conrad. "Evaluating Machine Learning Algorithms in Predicting Financial Restatements." In ICBIM 2020: 2020 The 4th International Conference on Business and Information Management. New York, NY, USA: ACM, 2020. http://dx.doi.org/10.1145/3418653.3418657.

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Xu, Qinfeng, and Wenju Kong. "Market Reaction of Financial Restatements of Listed Companies." In Proceedings of the 1st International Conference on Business, Economics, Management Science (BEMS 2019). Paris, France: Atlantis Press, 2019. http://dx.doi.org/10.2991/bems-19.2019.92.

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Qizhe Ren and Liying Chen. "Nonaudit services and financial restatements: Evidence from Chinese listed companies." In 2011 2nd International Conference on Artificial Intelligence, Management Science and Electronic Commerce (AIMSEC). IEEE, 2011. http://dx.doi.org/10.1109/aimsec.2011.6010357.

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Zhu, Zhaohui, and Chengwei Hu. "Market reactions to financial restatements - evidence from Chinese stock market." In EM). IEEE, 2010. http://dx.doi.org/10.1109/ieem.2010.5674247.

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Pan, Yu-Chun. "Uses Logistic Regression Analysis to Explore Between the Financial Crises and Financial Statement Restatements Relationship Under the Digital Transformation." In 2020 Management Science Informatization and Economic Innovation Development Conference (MSIEID). IEEE, 2020. http://dx.doi.org/10.1109/msieid52046.2020.00055.

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Cao Qiang, Hu Nanwei, and Pan Gang. "Financial Restatement and auditors' risk management." In 2015 12th International Conference on Service Systems and Service Management (ICSSSM). IEEE, 2015. http://dx.doi.org/10.1109/icsssm.2015.7170180.

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Gao, Fang, and Xin Zhao. "Review and Enlightenment of Financial Restatement." In 2016 2nd International Conference on Social Science and Higher Education. Paris, France: Atlantis Press, 2016. http://dx.doi.org/10.2991/icsshe-16.2016.71.

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Dai, Qinghui, and Xiang Xiao. "The Impact of Financial Report Inquiry on Financial Restatement." In 6th Annual International Conference on Social Science and Contemporary Humanity Development (SSCHD 2020). Paris, France: Atlantis Press, 2021. http://dx.doi.org/10.2991/assehr.k.210121.170.

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Hu, Nan-wei, Qiang Cao, and Lu-lu Zheng. "Financial restatement of listed company and auditor change." In 2012 International Conference on Management Science and Engineering (ICMSE). IEEE, 2012. http://dx.doi.org/10.1109/icmse.2012.6414353.

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Sun, Xuemei, Guohui Gao, Junjie Wan, and Songqing Wei. "An Analysis of the Factors Affecting Financial Restatement of Public Company." In Proceedings of the 2019 International Conference on Mathematics, Big Data Analysis and Simulation and Modelling (MBDASM 2019). Paris, France: Atlantis Press, 2019. http://dx.doi.org/10.2991/mbdasm-19.2019.23.

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Reports on the topic "Financial Restatements"

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Rebuilding Reputation after a Serious Financial Restatement. IEDP Ideas for Leaders, January 2014. http://dx.doi.org/10.13007/313.

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