Some of us sometimes hear in the press that Companies “restate” their financial reports. What does it really mean?

Answer:

In earlier articles, we have discussed about the different type of accounting principles or policies, changes in accounting policies , accounting fundamental errors and difference between change in accounting estimates and change in accounting policies.

At times, when there has been a substantial change in accounting principles or policies, the top management need to recast a previously determined (and published) balance sheet or operating statement and republished them.

• Say for example, Company XYZ’s 2007 published financial reports showed that the company’s accounting policy dictates the depreciation of its $100 million of fixed assets for 15 years but in 2008 management find that the realistic life span should only be 3 years hence in the 2008 published financial reports, besides the correct charge in 2008, the 2007 comparative year will be restated with the correct picture both for 2007itself  and previous affected years(vide retained earnings).