At this point in the year-end process most of us have numbers in place and are working on the final steps in reporting. As you move toward final reviews, we share with you Audit Analytics’ list of high-risk financial reporting areas that can hopefully help you avoid reporting problems.
For the last 17 years Audit Analyticshas done an exhaustive review of public company restatements. Their report “2017 Financial Restatements – A Seventeen Year Comparison” has an amazing wealth of information about numbers of restatements, types of restatements and trends over time.
For purposes of this post, the most meaningful information is the list of underlying areas that were involved in the 553 restatements made in 2017. These are the areas that clearly present the highest risks of misstatement in financial reporting, and warrant a bit of extra review before issuance of financial statements.
Here are the top ten items on Audit Analytics’ list for 2017:
Number and Percentage of
Debt, Quasi debt, Warrants & Equity (BCF) Security Issues 87 15.7%
Revenue Recognition Issues 77 13.9%
Tax Expense/Benefit/Deferral/Other Issues 77 13.9%
Cash Flow Statement Classification Errors 72 13.0%
Liabilities, Payables, Reserves and Accrual Estimate Failures 63 11.4%
Expense (payroll, SGA, other) Recording Issues 59 10.7%
Foreign, Related Party, Affiliated or Subsidiary Issues 53 9.6%
Accounts/loans Receivable, Investments & Cash Issues 47 8.5%
Acquisitions, Mergers, Disposals, re-org Acct Issues 45 8.1%
Deferred, Stock-based and/or Executive Comp Issues 40 7.2%
Note, the list goes on to include 14 other causes of restatements, but we are focusing on the top 10 here as the highest risk areas.
If you made tough calls in any of these areas, here is a reminder to be sure all the i’s are dotted, and t’s are crossed. Hope this helps!
As always, your thoughts and comments are welcome!