A Review of Research Studies on Financial Statement Restatements

This paper conducts a review of the literature dealing with financial statement restatements. Many of the studies involve the examination of phenomena that are associated with restatements. Others have investigated the impact of restatements on stakeholders such as company management, shareholders, lenders, financial analysts, and auditors. Some studies focus on the differential impact of restatements caused by unintentional errors versus those caused irregularities. A number of studies address whether company-initiated restatements have different effects than those initiated by outside auditors. Some of the research compares the impact of income-increasing restatements to income-decreasing restatements, while other research studies investigate revenue-related restatements to expense-related restatements. The vast majority of these studies have found that restatements are associated with negative company characteristics and that restatements have adverse consequences. This is the first article to conduct a thorough review and analysis of past research involving the nature and impact of financial statement restatements.