Journal articles on the topic 'Financial Restatements'
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1
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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Schmidt, Jaime, and Michael S. Wilkins. "Bringing Darkness to Light: The Influence of Auditor Quality and Audit Committee Expertise on the Timeliness of Financial Statement Restatement Disclosures." AUDITING: A Journal of Practice & Theory 32, no. 1 (September 1, 2012): 221–44. http://dx.doi.org/10.2308/ajpt-50307.
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SUMMARY: This study investigates whether auditor quality and audit committee expertise are associated with improved financial reporting timeliness as measured by the duration of a financial statement restatement's “dark period.” The restatement dark period represents the length of time between a company's discovery that it will need to restate financial data and the subsequent disclosure of the restatement's effect on earnings. For a sample of dark restatements disclosed between 2004 and 2009, we find that companies that engage Big 4 auditors have shorter dark periods than companies that do not engage Big 4 auditors. We also find that companies with more financial experts on the audit committee have shorter dark periods, but only when such financial expertise relates specifically to accounting. Finally, companies with audit committee chairs that have accounting financial expertise provide the most timely disclosures, as the dark periods for these firms are reduced by approximately 38 percent. Our results suggest that both auditor and audit committee expertise are associated with the timely disclosure of restatement details. Data Availability: All data are publicly available from sources identified in the paper.
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Liu, Li-Lin, K. Raghunandan, and Dasaratha Rama. "Financial Restatements and Shareholder Ratifications of the Auditor." AUDITING: A Journal of Practice & Theory 28, no. 1 (May 1, 2009): 225–40. http://dx.doi.org/10.2308/aud.2009.28.1.225.
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SUMMARY: Regulators and legislators have focused significant attention on financial statement restatements in recent years, and the U.S. Securities and Exchange Commission (SEC) and financial statement users view restatements as audit failures. The SEC (2000, 2003a) suggests that shareholder voting on auditor ratification will be impacted by perceptions of audit quality. In this paper we examine shareholder voting on auditor ratifications in 2005 or 2006 following restatement announcements by SEC registrants. We find that shareholders are more likely to vote against auditor ratification after a restatement when compared with votes at (1) firms without restatements or (2) restating firms in the preceding period. Overall, the results provide empirical support to the SEC's assertion that shareholder voting on auditor ratification will be related to perceptions of audit quality, and also support recent actions by shareholder activists to require all firms to submit the selection of the auditor for a ratification vote by shareholders.
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Altarawneh, Marwan, Rohami Shafie, and Rokiah Ishak. "Chief Executive Officer Characteristics and Financial Restatements in Malaysia." International Journal of Financial Research 11, no. 2 (March 16, 2020): 173. http://dx.doi.org/10.5430/ijfr.v11n2p173.
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The purpose of this paper is to investigate whether the Chief Executive Officer (CEO) characteristics affect the occurrence of financial restatements in Malaysian firms. The CEO characteristics used in this study were tenure, honorific title, gender, expertise, and age. In addition, the financial restatement has been measured as a dummy variable as to whether companies restate their financial statements or not. The sample of this study comprised 442 companies listed in the main market of Bursa Malaysia during the period 2012–2016. The panel data method was utilised to analyse the data. This study employed a logistic regression analysis. The results of this study revealed that there is a positive and significant relationship between CEO tenure and CEO gender with financial restatements. In addition, this study found a negative and significant relationship between CEO honorific title and financial restatements. However, the results found insignificant relationships between CEO expertise and age with financial restatements. This study highlighted the importance of considering CEO characteristics as one of the influential determinants of financial restatements in Malaysian companies.
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Irani, Afshad J., Stefanie L. Tate, and Le (Emily) Xu. "Restatements: Do They Affect Auditor Reputation for Quality?" Accounting Horizons 29, no. 4 (June 1, 2015): 829–51. http://dx.doi.org/10.2308/acch-51187.
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SYNOPSIS We examine whether an auditor's involvement with a financial statement restatement has a negative effect on their reputation as evidenced by both clients' and the market's assessments of audit firm quality. Specifically, we investigate the effect of auditor involvement with restatements on the non-restating clients' likelihood to dismiss their auditors in the year subsequent to restatement and on non-restating clients' market adjusted returns (MARs) around the restatement announcement date. We also investigate whether the severity of the restatements has a differential effect on both variables. We find non-restating clients are more likely to dismiss auditors as the number of restatements the auditor was involved with increases, and this likelihood increases with the number of restated items. In addition, non-restating clients' MARs are significantly negative around the restatement announcement date and are more negative with more severe restatements.
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Abbott, Lawrence J., Susan Parker, and Theresa J. Presley. "Female Board Presence and the Likelihood of Financial Restatement." Accounting Horizons 26, no. 4 (July 1, 2012): 607–29. http://dx.doi.org/10.2308/acch-50249.
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SYNOPSIS: This paper investigates the impact of one form of board diversity on the incidence of financial restatement. More specifically, we hypothesize that there is a negative relation between female board presence (defined as whether or not a board has at least one female director) and the likelihood of a financial restatement. Our hypothesis is consistent with a female board presence contributing to the board's ability to maintain an attitude of mental independence, diminishing the extent of groupthink and enhancing the ability of the board to monitor financial reporting. Utilizing the U.S. General Accounting Office (U.S. GAO 2002) report on restatements, we construct a matched-pair sample of 278 annual (187 quarterly) restatement and 278 annual (187 quarterly) control firms. After controlling for other restatement-related factors, we find a significant association between the presence of at least one woman on the board and a lower likelihood of restatement. Our results continue to hold in annual restatements from the post-Sarbanes-Oxley (SOX) time period.
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Blankley, Alan I., David N. Hurtt, and Jason E. MacGregor. "Abnormal Audit Fees and Restatements." AUDITING: A Journal of Practice & Theory 31, no. 1 (January 1, 2012): 79–96. http://dx.doi.org/10.2308/ajpt-10210.
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SUMMARY We investigate the relationship between audit fees and subsequent financial statement restatements in the years following the Sarbanes-Oxley Act of 2002 (SOX). After controlling for internal control quality, we find that abnormal audit fees are negatively associated with the likelihood that financial statements are subsequently restated. This result conflicts with prior work that finds that audit fees are positively associated with future restatements. Overall, our evidence is consistent with the notion that restatements reflect low audit effort or underestimated audit risk in the periods leading up to the restatement year.
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Xu, Yang, and Lijuan Zhao. "An investigation of financial expertise improvement among CFOs hired following restatements." American Journal of Business 31, no. 2 (June 6, 2016): 50–65. http://dx.doi.org/10.1108/ajb-07-2015-0022.
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Purpose – The purpose of this paper is to examine chief financial officer (CFO) qualification improvement associated with restatements and restatement characteristics (restatement materiality). The study is motivated by recent high-profile financial scandals and increasing instances of restatements which focus public attention on the role of CFOs in maintaining the integrity and quality of corporate financial reporting. Design/methodology/approach – The study employs data composed of 80 restating firms matched with 80 non-restating firms with hand-collected CFO turnover information in the periods of 2003-2010. The research questions are tested in the logistic regression models. Findings – The results provide some support that restating firms are more likely to hire new CFOs with greater accounting knowledge and overall CFO qualification (both accounting knowledge and CFO work experience) than non-restating firms. Furthermore, the authors also find that the number of restating years has a positive effect on CFO qualification improvement. Research limitations/implications – Although the authors fail to find strong evidence for the hypotheses (perhaps due to the small sample size) the authors provide the first evidence on the relation between CFO qualification improvement and restatement. Further research can examine the relation in the pre-SOX period, and investigate whether any of the firms experiencing CFO turnover have experienced any financial statement restatements in subsequent years. Originality/value – The results extend the understanding of companies’ strategies for regaining reporting credibility in the wake of restatements. Restatements of erroneous accounting numbers (primarily earnings) have led to significant losses for investors, contributed to a series of corporate governance reforms and legislative changes including SOX 2002, and prompted efforts to identify the remedies restating firms take to improve reporting quality and restore credibility.
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Badertscher, Brad A., and Jeffrey J. Burks. "Accounting Restatements and the Timeliness of Disclosures." Accounting Horizons 25, no. 4 (December 1, 2011): 609–29. http://dx.doi.org/10.2308/acch-50026.
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SYNOPSIS Regulators are concerned that during the process of restating financial statements, firms fail to provide timely progress updates, and delay earnings announcements and regulatory filings. To reduce these perceived lags in disclosure, an advisory group to the Securities and Exchange Commission recommends more use of catch-up adjustments rather than restatements to correct accounting errors. Some investor groups oppose the recommendations because they fear that preparers will begin to correct important errors through catch-up adjustments, which are less transparent than restatements. We inform this debate by examining (1) the length of disclosure lags around restatements to understand the extent of the problem, and (2) the causes of disclosure lags to evaluate whether the reforms would address the root causes of the lags. We find that lengthy lags are uncommon and appear to be largely unavoidable consequences of fraud investigations. When fraud is a factor, the firm typically takes weeks or months to release restatement details, quarterly earnings, and SEC filings, likely because investigations are necessary to restore the firm's ability to produce reliable information. When fraud is not a factor, the firm typically discloses the restatement's earnings impact within a day of the initial restatement announcement, and delays the quarterly earnings announcement and SEC filing by less than a week. Although fraud is by far the most economically significant cause of lags, we also find that lags increase when a restatement involves multiple, long-standing, or large errors. Finally, we show that the restatements targeted by the reforms tend to have the shortest lags, even among non-fraudulent restatements. Thus, the proposed reforms would have a negligible effect on disclosure timeliness because the targeted restatements tend to have short lags to begin with, and because long lags appear to be caused by inherent constraints on producing reliable information. JEL Classifications: M41, G38. Data Availability: Data are available from sources identified in the paper.
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Hasnan, Suhaily, Nur Syafiqah Mohamad Eskandar, Alfiatul Rohmah Mohamed Hussain, Ahmed Abdullah Saad Al-Dhubaibi, Mohd Ezrien Mohamad Kamal, and Rohmawati Kusumaningtias. "Audit committee characteristics and financial restatement incidence in the emerging market." Corporate and Business Strategy Review 3, no. 2 (2022): 20–33. http://dx.doi.org/10.22495/cbsrv3i2art2.
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This paper discusses issues concerning audit committee characteristics that lead to the occurrence of financial restatements in Malaysian public listed companies (PLCs). The audit committee characteristics were measured using size, independence, frequency of meetings, audit tenure, gender, expertise, age, ethnicity, legal qualifications, and political connections. The data in this study were extracted from the annual reports of 100 firms that had restated their financial statement between 2006 and 2015, and a total of 200 non-restatement firms were matched and observed as control firms. Using univariate and multivariate statistical analysis, the results evince that there is a significant association between audit committee size and frequency of meetings as well as ethnicity and political connections of the audit committee members and the occurrence of financial restatements in Malaysian PLCs. However, the remaining audit committee characteristics show insignificant association with the occurrence of financial restatements. Consistent with Wan Mohammad, Wasiuzzaman, and Nik Salleh (2016), the results show that larger and more rigorous audit committees can strengthen the monitoring role and consequently reduce the occurrence of financial restatements. In addition, the results evince that Malay members in the audit committee have widespread political connections, which negatively affect the decisions by the audit committee, thereby increasing the occurrence of financial restatements.
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Romanus, Robin N., John J. Maher, and Damon M. Fleming. "Auditor Industry Specialization, Auditor Changes, and Accounting Restatements." Accounting Horizons 22, no. 4 (December 1, 2008): 389–413. http://dx.doi.org/10.2308/acch.2008.22.4.389.
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SYNOPSIS: The increasing occurrence of accounting restatements has drawn considerable attention from regulators, audit firms, and corporate boards concerning audit and financial statement quality. Research suggests that auditor industry specialization is associated with improved error detection and greater financial statement quality. We examine the impact of auditor industry specialization on a sample of restatement and nonrestatement firms and find that auditor industry specialization is negatively associated with the likelihood of accounting restatement. In addition, focusing on the subset of restatement firms, we find that auditor industry specialization reduces the likelihood of issuing restatements affecting core operating accounts, suggesting that industry specialization adds value in auditing a particularly critical area of the firms’ continuing operations. Finally, we find changing from a nonspecialist to a specialist auditor increases the likelihood of restatement, and changing from a specialist to a nonspecialist reduces the likelihood of restatement. Our findings are consistent with industry specialization enhancing auditors’ role in improving the quality of the financial reporting process, particularly related to the core operations of their clients.
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Rich, Kevin T., and Jean X. Zhang. "Municipal accounting restatements and top financial manager turnover." Journal of Public Budgeting, Accounting & Financial Management 28, no. 2 (March 1, 2016): 222–49. http://dx.doi.org/10.1108/jpbafm-28-02-2016-b005.
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We investigate whether municipal financial manager turnover is associated with accounting restatements. This analysis is motivated by the notion that suspect financial reporting could limit the ability of stakeholders to assess the use of public resources (GASB, 2006). The evidence suggests that municipalities disclosing accounting restatements are more likely to see changes in the top financial manager position than a control sample of non-restatement municipalities. Overall, our findings are consistent with associations between financial reporting quality and the labor market for municipal financial managers, and imply that governments should consider adding the prevalence of accounting failures as an input in the evaluation of top financial managers.
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Susanto, Androni, and Dhea Ananda Syahputri. "Pengaruh tata kelola perusahaan dan karakteristik spesifik perusahaan pada kejadian penyajian kembali laporan keuangan." Fair Value: Jurnal Ilmiah Akuntansi dan Keuangan 5, no. 3 (October 25, 2022): 1282–94. http://dx.doi.org/10.32670/fairvalue.v5i3.2349.
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Financial statements are a means of communication between the activities of the company and the parties with an interest in the company. This study aims to analyze the effect of corporate governance as measured by board size, board independence, audit committee finance, audit quality, and company-specific characteristics as measured by firm size, ROA, leverage, and liquidity on the restatement of financial statements. The research method used is a quantitative method. There are 513 financial and non-financial companies listed on the Indonesia Stock Exchange during the 2017–2021 period, but 14 companies that do not meet the criteria for the research sample are 499 companies. The results of this study are that the formation of restatements, with a total of 122 and 229 non-restatements during the 2017–2021 period. This research says that the size of the company and the leverage of the company can influence the financial restatement events. There is an important positive relationship between firm size and financial restatement events. The size of a company can determine the size of a company. The size of the company affects the restatement of financial statements, because the bigger the company, the easier the transactions will be.
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Wei, Jo-Ting, Iou-Ming Wang, and Hsin-Hung Wu. "Mandatory restatement, family dominance and management turnover: the evidence from an emerging economy." Investment Management and Financial Innovations 14, no. 2 (July 6, 2017): 144–55. http://dx.doi.org/10.21511/imfi.14(2-1).2017.01.
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Due to the uniqueness of mandatory restatements, this paper examines whether family dominance affects the relationship between mandatory restatements and management turnover in an emerging economy – Taiwan. This paper adopts logistic regression models along with reporting the marginal effect of all explanatory variables to examine management turnover in different years around the year of mandatory restatement announcement. The findings show that family directorship weakens the positive relationship between mandatory restatements and management turnover in one year after the year of mandatory restatement announcement whereas do not show that family shareholding can affect the above relationship in any observed years. The findings have essential policy implications for security regulators and firms to strengthen family governance practices and financial reporting quality.
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Li, Yuedong, Xianbing Liu, and Qing Yan. "Is institutional investor a supervisor or cooperator?" Nankai Business Review International 9, no. 1 (March 5, 2018): 2–18. http://dx.doi.org/10.1108/nbri-02-2017-0007.
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Purpose The purpose of this paper is to discuss whether top management will assume their liabilities especially when financial restatement occurs, and,based on the “effective supervision theory” and “strategic cooperation theory,” to examine whether an institutional investor is a supervisor or a cooperator considering the management turnover caused by financial restatement in the companies. Design/methodology/approach Using a sample of the A-share-listed companies from year 2010 to year 2014 and dividing financial restatement into fraudulent financial restatement and other financial restatement, the authors examine the relationship between financial restatement and abnormal management turnover, which usually is related to the management integrity or capacity. By using group test methods, the authors test the influence of the institutional investors’ shareholding on the relation between financial restatements and management turnover. Findings This paper finds that financial restatement can result in abnormal management turnover, especially the fraudulent financial restatement. The institutional investors usually are supervisors but when the shareholding of institutional investor is too high and the management turnover results from fraudulent financial restatement, the institutional investors may become cooperators with management in the companies. Besides, the institutional investors play the supervisory function more significantly in non-state-owned enterprises. Originality/value This paper expands literature of the institutional investors in the corporate governance area and provides a basis for future research in the area of the institutional investors’ governance effect. It divides financial restatements into fraudulent financial restatement and other financial restatement and examines the relationship between financial restatement and abnormal management turnover so as to provide evidence about whether the management will assume their responsibilities when there is financial restatement in the company. It also tests whether the institutional investors will play supervisor’s or cooperator’s function in state-owned and non-state-owned enterprises.
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Withers, Michael C., Michael D. Howard, and Laszlo Tihanyi. "You’ve Got a Friend: Examining Board Interlock Formation After Financial Restatements." Organization Science 31, no. 3 (May 2020): 742–69. http://dx.doi.org/10.1287/orsc.2019.1319.
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We investigate the impact of financial restatements as critical events that influence board interlock formation among Fortune 500 firms during the 2009–2013 period. Our empirical study is based on a longitudinal analysis of tie formation while accounting for dynamic changes in the behavior and characteristics of network nodes using stochastic actor-oriented models. We find that firms facing financial restatements experience disruption in network ties. However, social status helps mitigate these effects, and restating firms build new ties through socially embedded processes, such as reciprocity and transitivity. Our work contributes to the understanding of how interorganizational relationships are altered as a result of financial restatement events.
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Papík, Mário, and Lenka Papíková. "DETECTION MODELS FOR UNINTENTIONAL FINANCIAL RESTATEMENTS." Journal of Business Economics and Management 21, no. 1 (November 28, 2019): 64–86. http://dx.doi.org/10.3846/jbem.2019.10179.
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The aim of manuscript is to analyze and identify determinants of honest accounting errors leading to financial restatements based on data from SEC database and from annual reports. Reason for this study is that accounting errors are expensive for companies that need to change already published financial statements and have impact on company reputation and stock price. Most of authors focus on prediction of accounting frauds and financial restatements remain in the background of research. This study initially tests existing accounting fraud detection model of Beneish on a sample of 40 financial restatement companies over 10 years and develops two new pioneer prediction models, one based on linear discriminant analysis (LDA) and another based on logistic regression. In testing dataset, LDA model has achieved accuracy 70.96%, specificity 25.00% and sensitivity 79.83% and logistic regression model has achieved accuracy 62.22%, specificity 41.66% and sensitivity 66.67%, performance of both models is better than existing Beneish model or other studies in this field. Developed models can be widely used by both internal and external users of financial statements, who would like to determine if financial statements of analyzed company include accounting errors or not, thanks to easily interpretable results in equation form.
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Hennes, Karen M., Andrew J. Leone, and Brian P. Miller. "Determinants and Market Consequences of Auditor Dismissals after Accounting Restatements." Accounting Review 89, no. 3 (December 1, 2013): 1051–82. http://dx.doi.org/10.2308/accr-50680.
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ABSTRACT This study examines the conditions under which financial restatements lead corporate boards to dismiss external auditors and how the market responds to those dismissal announcements. We find that auditors are more likely to be dismissed after more severe restatements but that the severity effect is primarily attributable to the dismissal of non-Big 4 auditors rather than Big 4 auditors. We also document that among corporations with Big 4 auditors, those that are larger and more complex operationally are less likely to dismiss their auditors. Combined, this evidence suggests that firms with higher switching costs and fewer replacement auditor choices are less likely to dismiss their auditors after a restatement, which is informative to the debates about the costs and benefits of mandatory auditor rotation and limited competition in the audit market. Additionally, we examine contemporaneous executive turnover and find evidence that boards view auditor dismissals as complementary rather than substitute responses to restatements. Finally, we investigate the market reaction to auditor dismissals after restatements. The market reaction to the dismissal is significantly more positive following more severe restatements (5.9 percent) relative to less severe restatements (0.6 percent) when the client engages a comparably sized auditor. This positive market reaction is consistent with firms restoring financial reporting credibility by replacing their auditors and highlights the important role that auditors play in the financial markets. Data Availability: Data are available from public sources indicated in the text.
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Li, Yiwen, You-il Park, and Jinyoung Wynn. "Investor reactions to restatements conditional on disclosure of internal control weaknesses." Journal of Applied Accounting Research 19, no. 3 (September 10, 2018): 423–39. http://dx.doi.org/10.1108/jaar-10-2017-0107.
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Purpose The purpose of this paper is to investigate investor reactions to financial restatements conditional on disclosures of internal control weaknesses under Section 404 of the Sarbanes-Oxley Act. Design/methodology/approach The research uses cumulative abnormal stock returns (CARs) as a proxy for investor reactions. Restatements and internal control reports are available on audit analytics. Multivariate regression analyses were used for testing. Findings Using a sample of restating firms whose original misstatements are linked to underlying internal control weaknesses, the research finds that cumulative abnormal returns for firms disclosing internal control weaknesses in a timely manner is negative in a three-day window around the restatement announcements. The finding indicates that restatements with early disclosure of internal control weaknesses provide more persuasive evidence of the ineffectiveness of a firm’s internal control over financial reporting, rather than early disclosure lowering the information asymmetry between a firm and investors. Research limitations/implications This study employs CARs to examine the market reaction to restatements conditional on disclosure of internal control weaknesses. Practical implications Further study on reactions by creditors who have access to private information on firms could extend the implications of the finding. Originality/value The study contributes to the existing research by documenting that early disclosure of material weaknesses in internal control affects investors’ reactions to financial restatements.
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Raghunandan, K., William J. Read, and J. Scott Whisenant. "Initial Evidence on the Association between Nonaudit Fees and Restated Financial Statements." Accounting Horizons 17, no. 3 (September 1, 2003): 223–34. http://dx.doi.org/10.2308/acch.2003.17.3.223.
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An increasing number of firms have restated previously issued financial statements in recent years. Legislators, regulators, and others speculate that restatements are associated with fees received by auditors for nonaudit services (nonaudit fees). The current study provides empirical evidence on the association between firms that restate financial statements and the nonaudit service fees received by incumbent auditors during reporting periods that required restatement. We identify a sample of 110 firms that restated financial statements previously filed with the SEC for fiscal years 2000 or 2001, and provided relevant audit and nonaudit fee data. The SEC requires firms to disclose these fee data beginning in proxy statements filed on or after February 5, 2001. We compare the fees paid by the restatement sample with fee data for 3,481 firms that filed proxies with the SEC from February 5, 2001 to August 31, 2001 and develop benchmarks for expected nonaudit fees, fee ratio, and total fees. Using these benchmarks, we calculate the unexpected values for these measures and investigate whether restatement firms differ from the control firms. Our findings of no significant differences between the restatement and control samples for unexpected nonaudit fees, fee ratios, and total fees do not support concerns that either nonaudit fees or total fees inappropriately influence the audit and lead to restatements.
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Abbott, Lawrence J., Susan Parker, and Gary F. Peters. "Audit Committee Characteristics and Restatements." AUDITING: A Journal of Practice & Theory 23, no. 1 (March 1, 2004): 69–87. http://dx.doi.org/10.2308/aud.2004.23.1.69.
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This study addresses the impact of certain audit committee characteristics identified by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (BRC) on the likelihood of financial restatement. We examine 88 restatements of annual results (without allegations of fraud) in the period 1991–1999, together with a matched pairs control group of firms of similar size, exchange listing, industry and auditor type. We find that the independence and activity level (our proxy for audit committee diligence) of the audit committee exhibit a significant and negative association with the occurrence of restatement. We also document a significant negative association between an audit committee that includes at least one member with financial expertise and restatement. To test the robustness of the results we also consider a sample of 44 fraud and no-fraud firms and arrive at largely similar findings. Our results underscore the importance of the BRC's recommendations as a means of strengthening the monitoring and oversight role that the audit committee plays in the financial reporting process.
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Wans, Nader. "Corporate Social Responsibility and Market-Based Consequences of Adverse Corporate Events: Evidence From Restatement Announcements." Journal of Accounting, Auditing & Finance 35, no. 2 (September 1, 2017): 231–62. http://dx.doi.org/10.1177/0148558x17725968.
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I analyze the informational value of corporate social responsibility (CSR) disclosures in the presence of bad news (i.e., financial restatements). I do so by examining the link between CSR and (a) restatement likelihood and the (b) market-based consequences of restatement announcements. I find that restatements are lower (higher) for firms that are more (less) CSR responsible, consistent with the view that CSR-conscious firms adhere to a corporate culture that promotes ethical practices. In analyzing the market effects of restatements, I find that investors respond less (more) negatively to restatements by firms that exhibit strong (weak) CSR performance. This is consistent with the notion that investors perceive positive CSR performance to be in line with managers’ incentives to promote corporate ethical values than with their incentives to cover up corporate misconduct. In addition, I find that restating firms that are less CSR conscious are more likely to be named as defendants in class actions following restatements. Although I do not find that the likelihood of litigation dismissal is associated with CSR performance, I find that among the cases settled, the amount of settlements is inversely associated with better CSR performance. Collectively, the evidence suggests that firms can effectively use CSR to hedge against potential risk stemming from adverse corporate events.
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Aier, Jagadison K., Joseph Comprix, Matthew T. Gunlock, and Deanna Lee. "The Financial Expertise of CFOs and Accounting Restatements." Accounting Horizons 19, no. 3 (September 1, 2005): 123–35. http://dx.doi.org/10.2308/acch.2005.19.3.123.
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We investigate whether the characteristics of chief financial officers (CFOs) are associated with accounting errors (using accounting restatements as a proxy). We investigate several metrics of financial literacy similar to those suggested for members of audit committees by the NYSE-NASD Blue Ribbon Committee. These metrics include years of work as a CFO, experience at another company, advanced degrees (like M.B.A.s), and professional certification (like a CPA). We use a logit model to test whether the likelihood of an earnings restatement is related to the above metrics of financial literacy (measured at the date of the original accounting error). Restating and non-restating companies during the period 1997–2002 were matched on year, industry, and company size. Overall, our results are consistent with restatements being negatively associated with the CFO's financial expertise. Specifically, we find that companies whose CFOs have more work experience as CFOs, M.B.A.s, and/or CPAs are significantly less likely to restate their earnings.
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Newton, Nathan J., Dechun Wang, and Michael S. Wilkins. "Does a Lack of Choice Lead to Lower Quality? Evidence from Auditor Competition and Client Restatements." AUDITING: A Journal of Practice & Theory 32, no. 3 (March 1, 2013): 31–67. http://dx.doi.org/10.2308/ajpt-50461.
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SUMMARY: We examine the relationship between auditor competition and the likelihood of financial restatements that occur as a result of failures in the application of generally accepted accounting principles (GAAP). Policy makers and audit market participants have expressed concern that the current level of auditor competition is low, resulting in a negative impact on audit quality. However, we find that restatements are more likely to occur in metropolitan statistical areas (MSAs) that have higher auditor competition. The association between audit market competition and restatements is statistically and economically significant. Our finding of a positive relationship between the likelihood of restatement and audit market competition is relevant to the ongoing debate regarding audit quality and the concentration of audit markets.
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Ragothaman, Srinivasan, and Angeline Lavin. "Restatements Due to Improper Revenue Recognition: A Neural Networks Perspective." Journal of Emerging Technologies in Accounting 5, no. 1 (January 1, 2008): 129–42. http://dx.doi.org/10.2308/jeta.2008.5.1.129.
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ABSTRACT: The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SEC 1999) in an attempt to curb improper revenue recognition practices. Nonetheless, revenue restatements and the subsequent earnings restatements have continued unabated. Our goal is to contribute to the emerging technologies literature by applying the neural networks methodology to the study of revenue restatements. We also compare the results of the neural network classification with classifications obtained from multiple discriminant analysis (MDA) and logistic regression (Logit) models. Six financial and governance variables were used to train the neural network on a sample of 180 firms, and the model was validated using a holdout sample of 51 additional firms. The results show that the neural network model has superior predictive power for predicting revenue restatement firms when compared to the MDA and Logit models. However, the Logit and MDA models predict nonrevenue restatement firms better. Moreover, when misclassification costs are included, the neural network (NN) model performs the best with the lowest relative misclassification costs.
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Oradi, Javad, and Javad Izadi. "Audit committee gender diversity and financial reporting: evidence from restatements." Managerial Auditing Journal 35, no. 1 (January 6, 2019): 67–92. http://dx.doi.org/10.1108/maj-10-2018-2048.
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Purpose The purpose of this paper is to investigate the association between gender diversity on the audit committees and the incidence of financial restatements. Design/methodology/approach Using a sample of 683 firm-year observations from Iranian listed companies for the period 2013 to 2017, this paper uses a logistic regression model to examine a research hypothesis related to the association between the presence of female members on the audit committee and the incidence of financial restatements. Findings After controlling for other restatement-related factors, the authors find that the presence of at least one female member on audit committees reduces the likelihood of the incidence of financial restatements. Robustness tests also confirmed this result. Moreover, the additional analyses show that independent and financial expert female members on audit committees are more strongly associated with a reduction in financial restatements. Further, the results suggest that the presence of female members on the audit committee can increase the likelihood of hiring higher quality auditors. Generally, the findings are consistent with the literature on gender diversity which suggests that women perform better in a monitoring role, are more conservative and make more ethical decisions. Practical implications The findings of this study could help with the understanding of broader participation of female directors on company boards and subgroups such as the audit committee, and of the improvement in corporate governance. Moreover, the findings can be of particular interest to monitoring authorities and policy makers in developing countries and send positive signals to them regarding the recommendation or requirement of gender diversity as a part of corporate governance mechanisms. Originality/value The present study contributes to the extant literature by providing empirical evidence on the effect of audit committee gender diversity on financial restatements. Furthermore, this study provides evidence on the more effective oversight and greater ability of independent and financial expert female directors, which has been significantly disregarded in the previous studies.
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Wang, Haiping, and Jing Zhang. "Securitizations and accounting restatements." Asian Review of Accounting 26, no. 4 (December 3, 2018): 571–94. http://dx.doi.org/10.1108/ara-10-2017-0151.
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Purpose The purpose of this paper is to establish a direct link between securitizations and accrual-based earnings management by investigating whether financial statements in the periods of securitizations are more likely to be restated at a later time. In addition, this study examines whether the association between securitization and accounting restatements is more pronounced in the pre-financial crisis period and for banks with less independent or industry-specialized auditors. Design/methodology/approach This study covers a sample of bank holding companies with restatement information between 2001 and 2012. Using the incidence of material accounting restatements as a proxy for accrual earnings management, this study investigates whether securitizations are likely used as a tool for accrual earnings management. A logistic model is applied with standard errors clustered at the firm-year level. Various robustness tests are conducted to rule out the possibilities that the results are driven by unintentional reporting errors or endogeneity of the securitization decisions. Findings The empirical results reveal a positive and significant association between banks’ securitization activities and the likelihood of having accounting restatements. Moreover, this positive association is more pronounced in the pre-financial crisis period and for banks with less independent or industry-specialized auditors. Research limitations/implications The findings suggest that managers take advantage of discretions on accounting rules for securitizations to manage earnings. This evidence provides multi-dimension implications for standard setters and practitioners, as well as investors. Originality/value This is one of the very first papers to document evidence that accrual earnings management is involved in securitization.
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Zahedi, Javad, and Ali Ramezani. "Competition in Industries, Corporate Governance; and Financial Reporting Quality." Journal of Management and Accounting Studies 3, no. 03 (July 19, 2019): 56–62. http://dx.doi.org/10.24200/jmas.vol3iss03pp56-62.
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The present study aimed to investigate the impact of product market competition; corporate governance accounting restatements of the firms listed on TSE. This study applies accounting restatement criterion for identification of low quality of reported accounting information in past financial statements of the firms listed on TSE. For this purpose, according to literature and institutional environment we select a set of most important corporate governance mechanisms include ownership concentration, board of directors independence and audit firm size associated with some control variable include corporation size and liquidity ratio that can be related to FRQ, and then considered to relation with earnings restatements. This study applies the financial statements information of firms listed on TSE during 2007 to 2013. The results of logistic regression analysis based on 846 year-firm observations indicate that according to past research corporate governance have a positive effect and competition has a negative effect on financial reporting quality (FRQ), however their interaction effect indicate that accounting information quality is increased. Therefore, evidence of this paper supports this opinion that competition and corporate governance mechanisms are complementary.
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Watson, Shaun, and Johan Coetzee. "The Impact Of Forced Financial Restatements On The Share Prices Of JSE Listed Firms." International Business & Economics Research Journal (IBER) 11, no. 12 (November 29, 2012): 1383. http://dx.doi.org/10.19030/iber.v11i12.7417.
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This study investigates the effect of forced financial restatements on the share prices listed on the Johannesburg Stock Exchange (JSE). An event study methodology is used to examine the share price reaction of 34 firms that forcefully restated their results following a GAAP Monitoring Panel review. The results indicate that the equity of 79.1 per cent of the firms decreased as a result of the restatement. The average standardised abnormal returns for 55.9 per cent of these firms were also found to be negative. The study further finds that the volume of shares traded directly following the announcement increased substantially, especially five days following the announcement. The study makes a contribution to the existing literature in that is the first of its kind to focus on the share price reaction of forced financial restatements on share prices in the South African context.
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Draeger, Michelle, Don Herrmann, and Bradley P. Lawson. "Changes in Audit Quality under Auditing Standard No. 5." Accounting and the Public Interest 16, no. 1 (December 1, 2016): 57–83. http://dx.doi.org/10.2308/apin-51676.
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ABSTRACT We examine the impact of Auditing Standard No. 5 (AS5) on audit quality. Prior research suggests a reallocation of resources toward higher-risk clients with no overall change in audit quality associated with the adoption of AS5. However, using financial restatements as our proxy for audit quality, we find the likelihood that financial statements are subsequently restated decreases in the AS5 period. These results are robust to several additional analyses. In addition to testing the occurrence of a restatement event, our results indicate that the duration of the restated period decreases during the AS5 period. Consistent with the objectives of AS5, we also find that the improvements in audit quality associated with AS5 are greater for complex firms than non-complex firms. Overall, using financial restatements as our proxy for audit quality, our results suggest that audit quality improves following the issuance of AS5. JEL Classifications: M41 Data Availability: The data used in this paper are publicly available from the sources indicated in the text.
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El-Gazzar, Samir M., and Philip M. Finn. "Restatements and accounting quality: a comparison between IFRS and US-GAAP." Journal of Financial Reporting and Accounting 15, no. 1 (April 10, 2017): 39–58. http://dx.doi.org/10.1108/jfra-10-2015-0090.
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Purpose This paper aims to examine whether sanctioning adoption of IFRS for US firms would produce accounting information of the same quality as those produced under US Generally Accepted Accounting Principles (GAAP). This is a timely research since the Securities and Exchange Commission (SEC; 2014) has asked for further review. Design/methodology/approach This study uses restatements of financial statements made by a sample of foreign firms listed on US stock exchanges using International Financial Reporting Standards (IFRS) in comparison to a control sample of US firms using US GAAP during the period of 2001to 2010. Statistical analysis of the frequency, sources and magnitude of the restatements and market revaluations to the announcement of the restatements are examined. Cross-country differences are also examined. Findings The results indicate that IFRS firms have a lower rate of restatements than US GAAP firms but with no significant differences in terms of sources of restatements and the impact on net income or shareholders’ equity. The market revaluations to restatement announcements show no significant differences between the two accounting regimes. Cross-sectional analyses indicate IFRS firms are on average from countries characterized by weak rule of law, ineffective corruption controls and lower efforts to promote private sector advancement. Research limitations/implications The sample size in the paper is relatively small. To increase validity of the inferences from the Results, this issue should be readdressed with larger sample. Practical implications Results are important to accounting practitioners and policymakers. Social implications Results are contributing in clarifying the SEC’s concerns of adopting the IFRS by US-based firms; thus, saving the investors the additional efforts and costs in comparing financial statements prepared under different accounting regimes. Originality/value This research is the first to use restatements as accounting quality criteria. The results suggest that adoption of IFRS by US-based firms would not produce accounting information that is significantly different in quality from those generated under US GAAP. This result should be of interest to the SEC in clarifying its concerns.
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Othman, Intan Waheedah, Richard Slack, and Rebecca Stratling. "The Likelihood of Forced Financial Restatement: The Case of Malaysia." 11th GLOBAL CONFERENCE ON BUSINESS AND SOCIAL SCIENCES 11, no. 1 (December 9, 2020): 144. http://dx.doi.org/10.35609/gcbssproceeding.2020.11(144).
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Forced restatement is the corrections made to published financial statements as prompted by the auditors or regulators due to non-compliance with the Generally Accepted Accounting Practices (GAAP) (Palmrose and Scholz, 2004). Forced restatements that are due to aggressive financial irregularities, lead to the impairment of investors' confidence on the quality of financial reporting, increase investors' concerns on managerial opportunistic decision-making, and cause substantial losses to shareholders. Forced restatement creates great concern, not only in developed countries, but also in developing countries, thus threatening local and foreign investments in these markets. The effort to determine early warning signals of firms that warrant investigation, specifically in the emerging country of Malaysia remain significant. The review from this study would be beneficial to the auditors and regulators to intervene earlier in terms of formulating plans and strategies to minimize aggressive managerial behaviour, and investors, customers, and suppliers to identify and avoid firms at risk of requiring a forced restatement. Keywords: Forced restatement, earnings management, corporate governance, Malaysia.
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Pyzoha, Jonathan S. "Why do Restatements Decrease in a Clawback Environment? An Investigation into Financial Reporting Executives' Decision-Making during the Restatement Process." Accounting Review 90, no. 6 (February 1, 2015): 2515–36. http://dx.doi.org/10.2308/accr-51049.
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ABSTRACT Prior archival studies find that firms that voluntarily adopted clawback policies have experienced a reduction in restatements. I experimentally examine this outcome by investigating the influence of two key factors (i.e., executive compensation structure and auditor quality) on financial reporting executives' (hereafter, “executives”) decision-making regarding a proposed restatement that will lead to a clawback of their incentives. I find that executives (i.e., CFOs, controllers, and treasurers) facing a lower quality auditor are less likely to agree with amending prior financial statements when a higher proportion of their pay is incentive-based. However, this tendency is reduced when executives face a higher quality auditor, indicating that higher quality auditors can act as effective monitors. My results identify an ex post unintended consequence of clawback regulation that could at least partially offset the benefits of the ex ante deterrent effects of clawbacks, and that could contribute to findings of less frequent restatements when clawback policies are in place. I discuss potential implications regarding the role of executives during restatement decisions and auditors' risk assessments in a clawback environment. Data Availability: Data are available from the author upon request.
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Rasyid, Ardiansyah, and Cenik Ardana. "Corporate governance, audit firm size and restated financial statement in Indonesia stock exchange." Corporate Board role duties and composition 10, no. 2 (2014): 77–84. http://dx.doi.org/10.22495/cbv10i2art6.
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This research aims to describe the corporations to take restatement in financial statement such as, corporate governance implementation and size of Audit Firm. Corporate Governance and size of Audit Firm are involved in auditing process. Theoretically, those influence the quality of financial statement. The occurrence of restatement of financial reporting is as a proxy for a lower of financial statement quality. Hence, corporate governance and size of Audit Firm should prevent from restated financial statement. The result of this research describe that number of independent commissioner and number of audit committee do not prevent from restated financial statement. In addition, size of Audit Firm is not obvious to increase the quality of financial statement, because there are several of big four audit firms have been appointed by such corporation as external auditor or some of restatements have been done by non-big four. This research describes the composition of independent commissioner, audit committee and also Audit Firms size do not influence directly to restated financial statement.
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Qasem, Ameen, Norhani Aripin, and Wan Nordin Wan-Hussin. "Financial restatements and sell-side analysts' stock recommendations: evidence from Malaysia." International Journal of Managerial Finance 16, no. 4 (April 2, 2020): 501–24. http://dx.doi.org/10.1108/ijmf-05-2019-0183.
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PurposeThe purpose of this paper is to examine the influence of financial restatements on the sell-side analysts' stock recommendations.Design/methodology/approachThe sample of this study is based on a dataset from a panel of 246 Malaysian public listed companies for the period 2008 to 2013 (651 company-year observations). This study employs feasible generalized least squares regression.FindingsThis study finds a negative and significant relationship between restated companies and sell-side analysts' stock recommendations, which means that sell-side analysts issue less favorable stock recommendations for restated companies.Practical implicationsThe findings based on observations from an emerging economy complement the results of the US studies that analysts revise their earnings forecasts or recommendations downwards or drop coverage following financial restatements. The results of this study should be useful to capital market participants in understanding how analysts perceive and evaluate restated companies.Originality/valueThis paper expands the literature on financial restatements consequences in an emerging market which is largely unstudied. Prior research on analyst behavior towards restatements has focused on the consequences of restatements in terms of analyst following and forecast accuracy and dispersion. This study examines if and how the restatements affect the analysts' final output as reflected in the recommendation opinion, an area that has so far received little attention.
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Lobo, Gerald J., and Yuping Zhao. "Relation between Audit Effort and Financial Report Misstatements: Evidence from Quarterly and Annual Restatements." Accounting Review 88, no. 4 (February 1, 2013): 1385–412. http://dx.doi.org/10.2308/accr-50440.
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ABSTRACT We identify two research design issues that explain the inconsistency between the theoretically predicted negative relation between audit effort and misstatements (measured using restatements) and empirical findings. First, auditor risk adjustment behavior induces an upward bias in the association between audit effort and restatements. Second, the theoretical prediction applies only to audited financial reports (i.e., annual reports) and not to unaudited reports (i.e., interim quarterly reports). Comingling restatements of audited with unaudited reports introduces an additional upward bias in the association between audit effort and restatements. After correcting for these two sources of bias, we find a robust negative association between audit effort and annual report restatements. JEL Classification: M49. Data Availability: Data used in this study are available from public sources.
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Wei, Jo-Ting. "Financial Reporting Material Misstatements, Earnings Conservatism and Managerial Replacement Decisions." International Journal of Business and Economic Sciences Applied Research 14, no. 1 (June 2021): 7–21. http://dx.doi.org/10.25103/ijbesar.141.01.
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Purpose: Based on signal theory and legitimacy theory, this paper examines whether firms with financial reporting misstatements (restatements) would prefer conservative financial reporting to send signals regarding their determinants of improving financial reporting credibility and legitimate organizational image in Taiwan. This paper further examines whether these firms reduce the demand for conservative financial reporting after replacing managers in the reveal of restatements.
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Demirkan, Sebahattin, and Ross D. Fuerman. "Re-evaluating the effectiveness of auditing standard no. 2: longitudinal analysis of restatements and the outcome of auditor litigation in lawsuits filed from 1996 to 2009." Corporate Ownership and Control 11, no. 2 (2014): 300–315. http://dx.doi.org/10.22495/cocv11i2c2p7.
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We provide evidence of the impact of Auditing Standard No. 2 (“AS 2”), issued pursuant to the Sarbanes-Oxley Act of 2002 (“SarBox”), on the outcome of auditors in financial reporting litigation. Specifically, we focus on the existence of financial restatements and how and why they affected the outcome of the auditor in the financial reporting lawsuits. Our longitudinal method subjected to year-by-year regression analysis 2,059 financial reporting lawsuits filed from 1996 to 2009. Our results indicate that restatements are positively associated with more severe outcomes for the auditor in lawsuits filed in 2002 and in the years after 2004. However, restatements are not significant in lawsuits filed in 2003 and 2004. Pressure from SarBox Section 906 criminal penalties and Section 302 requirements to disclose material weaknesses, coupled with a lack of guidance to distinguish material weaknesses from significant deficiencies, temporarily and indirectly caused the issuance of a large number of restatements that were not material or comprehensible to participants in the legal system. Thus, they were temporarily unable to use the restatements to inform their litigation behavior. However, after the June 17, 2004, release of AS 2, participants in the legal system were again able to use the restatements to inform their behavior. This suggests that AS 2, notwithstanding its inefficiency, necessitating its subsequent superseding by Auditing Standard No. 5 (“AS 5”), increased audit effectiveness and financial reporting quality by facilitating more accurate identification of material weaknesses
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Samba, Codou, Seemantini Madhukar Pathak, and Mengge Li. "Audit Committee Diversity and Financial Restatements." Academy of Management Proceedings 2016, no. 1 (January 2016): 16755. http://dx.doi.org/10.5465/ambpp.2016.16755abstract.
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Eng, Li Li, Ramesh P. Rao, and Shahrokh Saudagaran. "Earnings informativeness after financial statement restatements." International Journal of Revenue Management 6, no. 3/4 (2012): 221. http://dx.doi.org/10.1504/ijrm.2012.050385.
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Gertsen, Fred H. M., Cees B. M. van Riel, and Guido Berens. "Avoiding Reputation Damage in Financial Restatements." Long Range Planning 39, no. 4 (August 2006): 429–56. http://dx.doi.org/10.1016/j.lrp.2006.09.002.
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