A restatement corrects previously issued financial statements that contained a material misstatement, and it sets off a defined sequence.
Determination of non-reliance. The board or the audit committee concludes that previously issued statements should no longer be relied upon, which triggers a prompt filing disclosing the conclusion.
Big R and little r. A material misstatement requiring reissuance of prior statements, versus a correction of an immaterial error in the current period’s comparatives. The assessment considers both quantitative and qualitative factors, and the qualitative ones — whether the error masks a trend, affects compliance with covenants, or increases management compensation — frequently drive the conclusion.
Investigation. Where the error may involve misconduct, an independent investigation directed by the audit committee, with the auditor’s expectations about scope and independence shaping it.
Auditor communications about illegal acts, and the auditor’s own obligations if the company does not act.
Consequences. Clawback of incentive compensation under listing standards without regard to fault; securities litigation; regulatory inquiry; internal control conclusions; and covenant defaults where financial statements are represented as accurate.
Timing. The delay between announcing non-reliance and filing corrected statements is itself scrutinised.