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
Area                                                                                                                          Restatements

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!