Revisions and restatements
Financial restatements explained
Short answer
- US disclosure
- Form 8-K Item 4.02, Non-Reliance on Previously Issued Financial Statements 1
- US filing deadline
- Within four business days after the event, except where the form specifies otherwise 1
- US accounting standard named in Item 4.02
- FASB ASC Topic 250 1
- IFRS standard
- IAS 8, renamed Basis of Preparation of Financial Statements 3
- Pay recovery lookback
- Three years before the date a restatement was required 2
- EU enforcement options
- Reissued statements, corrective note, or correction in future statements 4
Restatement, change in estimate, change in policy
Not every change to past numbers is a restatement of an error. The IFRS Foundation summary of IAS 8 says changes in accounting policies are applied retrospectively, with stated exceptions 3. Changes in accounting estimates are recognised prospectively, in the period of the change and in future periods if both are affected 3.
Errors are treated differently. Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods affected. The exception is where it is impracticable to determine the effects 3. The standard was earlier titled Accounting Policies, Changes in Accounting Estimates and Errors. It took its new title when IFRS 18 replaced IAS 1, a change the Board issued in April 2024 3.
The US non-reliance notice: Form 8-K Item 4.02
Item 4.02 of Form 8-K has two triggers 1. Under Item 4.02(a), the company itself concludes that previously issued financial statements should no longer be relied upon due to an error, as addressed in FASB ASC Topic 250 1. Under Item 4.02(b), the company's independent accountant advises it that action should be taken to prevent future reliance on a previously issued audit report or completed interim review 1.
General Instruction B.1 says a report is to be filed or furnished within four business days after the event, except where the form specifies otherwise 1.
| Item | Who reaches the conclusion | What the filing must state |
|---|---|---|
| 4.02(a) | The registrant 1 | Date of the conclusion, the statements and periods affected, a brief description of the facts, and whether the audit committee or board discussed it with the auditor 1 |
| 4.02(b) | The independent accountant advises or notifies the registrant 1 | Date of the notice, the statements affected, a brief description of the accountant's information, and whether the audit committee or board discussed it with the auditor 1 |
Restatements and executive pay recovery in the US
SEC Rule 10D-1 links restatements to pay. According to the SEC fact sheet, an issuer that is required to prepare an accounting restatement must recover incentive pay that was erroneously awarded 2. The fact sheet says this reaches restatements for an error that would result in a material misstatement if the error were corrected in the current period 2. The recovery period is the three years preceding the date the restatement was required 2.
The fact sheet set the timetable in relation to Federal Register publication. The rules took effect 60 days after publication, and exchange listing standards had to be effective no later than one year after publication 2.
How EU enforcers order corrections
In the EU, national enforcers review issuers' accounts under the ESMA Guidelines on Enforcement of Financial Information, reference ESMA32-50-218, dated 4 February 2020 4. Guideline 7 says that whenever a material misstatement is detected, the enforcer should take at least one of three actions in a timely manner 4.
Reading a restatement record
When two filings from one company show different figures for the same period, check which filing came later and whether it carries a restatement label. Under IAS 8 the later report restates the comparative column 3. In the US, an Item 4.02 filing names the statements and periods that should no longer be relied upon 1. Those periods mark where the older figures stop being the company's position.
Common questions
What does Item 4.02 on a Form 8-K mean?
It means a US registrant has concluded, or been told by its auditor, that previously issued financial statements should no longer be relied upon 1.
How fast must a US company report non-reliance?
Form 8-K reports are due within four business days after the event, except where the form specifies otherwise 1.
Is a change in an accounting estimate a restatement?
No. IAS 8 applies changes in estimates prospectively, and it corrects material prior period errors by restating comparatives 3.
Can an EU regulator force a company to correct its accounts?
Under ESMA Guideline 7 an enforcer that detects a material misstatement should require a reissuance, a corrective note, or a correction in future statements 4.
Rules and charges change. Check the official source linked on this page before you pay or travel. Spotted an error? Email hello@recordsdisagree.com.
Sources
- U.S. Securities and Exchange Commission: Form 8-K Current Report (OMB Number 3235-0060)
- U.S. Securities and Exchange Commission: Fact Sheet, Recovery of Erroneously Awarded Compensation
- IFRS Foundation: IAS 8 Basis of Preparation of Financial Statements
- ESMA: Guidelines on Enforcement of Financial Information, ESMA32-50-218 (4 February 2020)
Related
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- How to compare two conflicting records
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- Why official records disagree
The main reasons two official records show different figures for the same thing: timing, revisions, corrections, scope, definitions and restatements.