Financial Statement Restatement and Ethics

by | Aug 22, 2021 | Assignment

Write 3 page essay on the topic On Financial Statement Restatement and Ethics.The company restated its position on august 1, 2012 stating that the financial records were not fit for their purpose in compliance with general accounting and reporting standards (Cubic Corporation, 2008).

One of the impending reasons that can lead to the restatement as witnessed by the recent restatement is correcting errors. It forms one of the most common reasons for financial restatement (Cubic Corporation, 2008). It happens after the release of the financial statements. Consequently, errors are found by the company or the auditor. If the error margin is observed as material to financial statements, the statements are to be corrected and re-issued to the users. Materiality is determined if the statements will lead to the users coming to incorrect conclusions in their analysis (Taub, 2006).

Another reason is the changes in GAAP. If a change in the current accounting methods brings about a change in the prior year’s statements in the case of retroactive application, the statements are required to be restated (Taub, 2005). As such, it ensures that no statement is changed over the course arises from a change in the accounting policy in use. For instance, the company chose to switch from a first-in-first-out inventory costing policy to a last-in-first-out. Consequently, the statements in the previous period must be restated in order to follow the new policy.Changes in reporting entity also cause restatement of financial statements (Lee et al., 2006). In the case of a company transition from one set of ownership to a new one or the structure of ownership change in the current year and the change has an impact in the current financial statements reporting or disclosures, the prior period comparative statements must be restated. The restatement is made to facilitate a smooth transition such that the implication will be that the change occurred in the beginning of the current year (Plumlee & Yohn, 2008b).

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