Whether driven by the increasing complexity of accounting standards, the dynamic regulatory environment or changing business activities, companies are facing an increased risk of financial reporting restatements. Companies undergoing a restatement quickly realize that resolving the accounting complexity is only the first step in the process. The complexity of managing expectations and communicating with various stakeholders including the Board of Directors, auditors, regulators, shareholders and others can prove to be challenging and time consuming.
When working through a restatement, management is challenged to react quickly to problem areas they may or may not be prepared to handle while continuing to perform their "day-to-day" responsibilities. Often the trigger to a restatement is only the tip of the iceberg and companies may quickly find themselves facing potential delinquency on current reporting requirements while trying to detect and correct past errors.
Nobody wants to go through a restatement – between managing stakeholders and navigating the accounting complexities, there are a myriad of issues facing management. Many companies do not have the resources in-house to manage such an unfamiliar process.
Chad Kokenge, Partner
Impacts to companies:
- Restatements can be drawn out and expensive processes and may require management to communicate with many different stakeholders including the Board of Directors, auditors, regulators and shareholders;
- Working with auditors through the restatement process can prove challenging and complex;
- Management continues to be responsible for their "day-to-day" responsibilities focusing on present and future issues, while also distracted with reassessment of accounting/reporting in prior years;
- Management may not have deep in-house technical resources in certain areas of accounting (e.g. derivatives, hedging and consolidation, etc.).
What companies should do:
To the extent restatement or similar issues arise, consider involving an experienced adviser, such as PwC to provide:
- Experience in complex, multi-year restatement advice and support, including project administration.
- Technical expertise in complex areas prone to restatement such as revenue recognition, liabilities/contingencies/reserves, equity awards, financial instruments, acquisitions, income taxes, leases and financial statement classification.
- Expertise in SEC and other regulatory reporting requirements (eg. 10-K/A, 8-K, 12b-25).
- Thorough understanding of different stakeholder's expectations and how to navigate effectively through sensitive discussions.
- Integrated skill sets to support valuation, tax, actuarial, training, accounting policies and other needs, and to provide solutions that fit client-specific needs.