January 29, 2019

Restatements: “Out-of-Period Adjustments” On the Rise

When you find a mistake in the financials, one of the first questions that must be answered – after you stop hyperventilating – is “how do we correct the error?” This Audit Analytics blog reviews how companies have answered that question in recent years.  The blog says that there’s been a trend away from restatements & toward the more benign “out-of-period adjustments” – and suggests that better internal controls may be part of the reason for it.

This excerpt reviews the issues that most frequently resulted in out-of-period adjustments and restatements during the period from 2009-2016:

When it comes to which types of issues are being corrected via out-of-period adjustments, taxes topped the list for the last 8 years. In 2016, companies recorded 85 tax related out-of-period adjustments – 26% of all the out of period adjustments recorded during the year. Second and third of the top issues were liabilities (14%) and revenue recognition (12%).

The most common issues being corrected differ when looking at restatements. Securities (debt, quasi-debt, warrants & equity) issues ranked at the top, comprising 17.6% of restatements in 2016, whereas they account for only 5.8% of out-of-period adjustments during the same year. Classification issues was the next most common restatement issue (14.2% of all 2016 restatements).

Ultimately though, the deciding factor between a restatement and an out-of-period adjustment is materiality, and the blog notes that when it comes to materiality, size matters.  For most of the periods surveyed, the largest restatement was bigger than the largest out of period adjustment.

SEC’s Shutdown: “Keep On Rockin’ In The Free World. . .”

The government shutdown caused a lot of financial hardship, so we tip our hats to the band “G.O.A.T. Rodeo” – which played a concert in DC last week to provide some free entertainment and raise a little money for displaced federal workers. It turns out that the membership of the band isn’t what you might expect. As this Bloomberg Business Week article notes, the SEC Staff is well represented in the band:

The U.S. Securities and Exchange Commission lawyers who took the stage at Washington’s Rock & Roll Hotel Thursday night have won accolades for suing Goldman Sachs Group Inc. and writing rules for Wall Street traders. This time, their greatest hits were more of the heavy metal variety.

Prompted by the government shutdown, the SEC workers — who moonlight in a band called G.O.A.T. Rodeo — played a concert for fellow furlough victims. The plan was to raise some money for a charitable fund that helps federal employees and blow off some pressure that’s been building over the past month.

“We’ve been going a little crazy around my house, stir crazy, not working,’’ said Stacy Puente, an SEC attorney, before she launched into Ozzy Osbourne’s hit “Crazy Train.” The crowd, many of whom were also missing paychecks and unable to go to their jobs at the SEC and other agencies, nodded their heads and pumped fists in the air.

Vocalist Stacy Puente was joined by SEC enforcement lawyer Reid Muoio on drums, while other SEC staffers played lead guitar & keyboards. By the way, I love the band’s name – and there’s nothing more appropriate than having a band named “G.O.A.T. Rodeo” play a fundraiser for people feeling the pain of our national “goat rodeo.”

Transcript: “Pat McGurn’s Forecast for 2019 Proxy Season”

We have posted the transcript for our recent webcast: “Pat McGurn’s Forecast for the 2019 Proxy Season.”

John Jenkins