Accounting Restatements for Error Corrections

Описание: What is a company required to do when it discovers an error in its financial statements? Under U.S. GAAP, it depends on the situation.

If the error is material to prior periods, the company must file an 8-K with the SEC to notify investors and creditors that the company's prior-period financial statements can no longer be relied upon. Then the company must issue an amended 10-K with restated (corrected) figures for the prior periods. This is called a "Big R" restatement.

If the error is not material to prior periods, but correcting the error in the current period would be material to the current period, the company must revise the prior-period financials and present the corrected figures (along with a disclosure) when it presents its next 10-K. However, the company doesn't need to file an 8-K telling investors the prior-period financials can't be relied upon and it doesn't need to file an amended 10-K. This is called a "Little r" restatement.

If the error is neither material to prior periods nor the current period, then the company should simply fix the error and move on without revising prior-period financial figures or making a disclosure. This is called an out-of-period adjustment.
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