Chicago (Jan. 15, 2004) -- Errors in accounting for reserves and contingencies were the leading cause of financial restatements in 2003, followed by revenue recognition, according to a report by Huron Consulting Group.
Restatements attributable to that category, which includes errors related to accounts receivable and inventory reserves, restructuring reserves, accruals and other loss contingencies, experienced a greater increase in 2003 than any other accounting issue, according to Huron’s 2003 Annual Review of Financial Reporting Matters. Huron noted that those restatements don’t reflect changes in estimates of reserves and contingencies, but rather “reflect flawed judgments due to the oversight or misuse of facts, fraud, or a misapplication of generally accepted accounting principals.”
While revenue recognition was the second leading cause of restatements in 2003, the 63 revenue recognition-related restatements represented a 26 percent decrease from 2002, when Huron said revenue recognition restatements reached an all-time high.
The number of public companies that restated their financials with the Securities and Exchange Commission due to accounting errors totaled 323 in 2003, off slightly from the previous year’s 330 restatements, and up from 270 in 2001 and 233 in 2000. The number of restated audited annual financial statements rose to a record high of 206, representing 63 percent of all restatements for 2003.
"The number of accounting errors identified in 2003, though certainly not a cause for celebration, may indicate that we have put the worst restatement period behind us and can expect to see further improvements in the years ahead," said Joseph J. Floyd, chief operating officer for Huron's Financial and Economic Consulting practice.
Restatements by companies with annual revenues under $100 million rose to 158, or 49 percent of all restatements filed during the year. The percentage of restatements filed by companies with annual revenues greater than $1 billion decreased slightly, from 22 percent in 2002 to 20 percent in 2003.
-- WebCPA staff
