Accounting Changes

Financial statement is a record or report of all financial activities of a company or business. Financial restatement is a process by which a previously issued financial statement is revised or reviewed so that it can reflect interaction errors made in the statement. Preparing financial statements is a requirement by Acceptable Accounting Principles or GAAP.

Security Exchange Commission or SEC ensures that companies avails their financial information and material data to enable investors to make appropriate investment decisions. SEC orders firms to disclose financial statements and if the law has been violated it files lawsuits against the firms. However, this body does not guarantee organizations their security.

An example of a firm that is publicly traded and has had financial restatement in the past is CKE Restaurant. CKE Restaurants filed 10-Q form on quarterly basis with SEC reporting their total revenue as $308.6 million for the second quarter of the financial year 2013.  This was an increase of 3% as compared to the financial year 2012. (Jonathan, Stanley & Todd, 2007)

For a company to restate its financial statement, it must experience any of the following: fraud, accounting errors, failure to comply with accounting principles and clerical errors. Importance of financial restatement includes products’ cost establishment, revenue adjustments, and addressing security issues of a company. SEC or independent auditor can also order a financial restatement of a company. (Fred, Gertsen, Cees, Guido, 2006)

CKE Restaurants restated financial statement due to accounting errors, clerical errors, fraud and failure to comply with the accepted accounting principles. The Restaurants applied the acceptable principles of accounting and involved external auditors in its financial restatement. 

Management of any company plays a crucial role in the preparation of financial statements as well as restatements because the management has to state all financial activities accurately to win confidence and trust of stakeholders and investors. Although some organizations revise accounting errors quietly without using 8-K form from SEC, the act poses trouble to investors.

Despite using GAAP, financial statement of any company should be examined by external auditors. This is only possible when a company includes external auditors in the panel of experts involved in restating its financial statement. (Sandra, Shelton, Owens-Jackson & Diana, 2011)