Understanding the Restatement Process

37 Pages Posted: 11 Jan 2012

See all articles by Susan A. McCracken

Susan A. McCracken

McMaster University - Michael G. DeGroote School of Business

Janne Chung

York University - Schulich School of Business

Date Written: January 10, 2012


There has been much research on investors’ reactions to restatements and the effects of restatements on share prices; however, there has been little research on the processes involved in restating financial restatements. In this study, we investigated the process of issuing a restatement. We specifically focused on the interactions that took place between the parties involved (eg, CFO, the board, audit committee, audit partner, and regulators) in the determination and ultimate disposition of a restatement, as well as the impact of the restatement on the relationships between these parties. We investigated the restatement process via semi-structured interviews. We immersed ourselves in the restatement process by interviewing all parties typically involved, such as CFOs, auditors, consultants, and regulators. Given the findings in the auditor-client management negotiation area that suggests negotiation of accounting treatment and disclosure is frequent, we posit that negotiations or difficult discussions take place between the parties involved when determining if a restatement is necessary, as well as the ultimate restatement outcome. Our results indicate that the restatement process may influence or be influenced by such factors as: nature of the misstatement, who identified the misstatement, the reaction of the various parties to the misstatement, disagreement on whether to restate, communication with the regulator, the press release, client size, personality of the CFO, audit committee strength, and the relationship between the parties subsequent to the restatement.

Suggested Citation

McCracken, Susan A. and Chung, Janne, Understanding the Restatement Process (January 10, 2012). CAAA Annual Conference 2012, Available at SSRN: https://ssrn.com/abstract=1982744 or http://dx.doi.org/10.2139/ssrn.1982744

Susan A. McCracken (Contact Author)

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4

Janne Chung

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3

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