A restatement is a correction or revision to the any of the accounting statements issued by a business for a specific time period. In some cases, the reason for the correction is the accidental omission of financial data, a posting error, or some other type of unintentional mistake. More commonly, the restatement becomes necessary when a deliberate attempt to cook the books or falsify financial data has taken place, and the activity has been uncovered. These methods are sometimes referred to as under the table accounting, voodoo accounting, or cookie jar accounting.
There are a number of ways that simple errors can be made in keeping accounting records, resulting in the need to issue a restatement. In some cases, the amount of a receivable or payable is transposed, or a cost is applied to an incorrect line item. Posting errors can often be identified by periodic in-house audits of the accounting records by comparing the entries with the back-up documentation for each transaction. When these errors are identified after a financial statement has been released, it is necessary to correct those errors, then prepare a revised statement that more accurately reflects the true financial condition of the company.
It is also possible that the need for a restatement comes about when deliberate attempts to misrepresent the finances of the business are discovered. These attempts, sometimes referred to as cookie jar accounting, often make use of both barely legal and illegal procedures to create the perception that a business is not making a profit when it really is doing well. These same so-called voodoo accounting practices may also be used to who the business is making a profit when the revenue generated for the period under consideration is considerably less than reported.
For example, a business may try to cook the books in an attempt to secure additional tax benefits that would not be possible if the true status of company finances were reported. In like manner, a company may arrange financial records in a way that gives potential investors the impression that the business is more solvent that it really is, and thus increase their chances of attracting new investors. Should the activity used to create these false perceptions be uncovered, steps to correct the books and present a restatement that is realistic is often part of the restitution that the company must make, along with paying any fines or penalties imposed by regulatory agencies.
