SEC Fillings

SEC Fillings

In US public companies, broker-dealers and some insiders are mandated to submit their financial statements to the US Securities and Exchange Commission (SEC). These statements are referred to as SEC filings. These filings are important since investors and other financial professionals rely upon their information in evaluating their investment worthiness. A company that has recently restated its financial statement is Safety-Kleen Corporation. The company is located in Northern American and deals in waste management. It filled its SEC in 2001 and its financial restatement was issued the same year (Todd, 2009).

Restatement of company’s financial statement arises due to various reasons. Restatement refers to revision and publication of one or more than one previous financial statement of a company. This arises when it is revealed that the previous statement presented had some material inaccuracies that misrepresented the financial position of a company.  Common reasons for restatement may be due to non-compliance with generally accepted accounting principles, accounting errors, misrepresentation or simple clerical error and fraud among other causes (Plumlee & Yohn, 2008). The reason of restatement of this public traded company- Safety-Kleen Corporation was due to alleged accounting fraud that had been done by the company. This allegation was initiated by the board of directors leading to restatement, which saw its previously reported net income reduced by $534 million for the years 1997, 198 and 1999 (Todd, 2009). This restatement had negative impacts on the financial position of the company. Its revenue was reduced by $534 million.  Its stock prices recorded a drop of over 70% as its major auditor PriceWaterCoppers withdrew its audit reports for the last three years.  The credit rating of the company reduced as some agencies removed theirs. Furthermore, recommendations by analyst companies downgraded leading to reduction in its financial stability.

Management has the responsibility to their investors and stakeholders when their financial statements are restated. It is the duty of the management to ensure that these financial restated statements represent the reality and present accurate information to foster confidence and credibility to its investors and stakeholders (United States General Accounting Office, 2002). When management fails to ensure true presentation, it affects their credibility and integrity and even their competence as managers.

Financial restatements show serious corporate reporting failures, which often have the potential of curtailing investors and stakeholder’s confidence and decision. Managers therefore have the responsibility of ensuring that such restatement does not occur. Investors and stakeholders need to be assured that their investments and stakes in the company are well safeguarded and well managed and therefore, when these financial statements are restated, they lose confidence in management.

When a company makes the decision or finds it right to restate its financial statement, it implies that something somewhere was not working the way it was supposed to.  This may include problem with internal controls, accounting principles used, accounting fraud or accounting errors among many others (Bhattacharyya, 2008).  One of the changes that I would expect for a company to change after restatement is its accounting standards. Some of the accounting standards may be complex for companies to understand and apply leading to presentation of financial statement that does not meet the threshold of financial reporting standards.  For instance, General accounting accepted principles contain many rules that most countries in America use which may lead to confusion.  Weak internal control and financial governance should also be revisited to seal loopholes (SEC Advisory Committee on Improvements to Financial Reporting, 2008). Directors, managers, audit committee, internal auditors and external auditors should ensure reliability in financial reporting. If these people are not operating professionally, then they can be charged or reorganized to ensure that no other restatement is done.

Another change is to increase conservatism among auditors and the audit committee by increasing scrutiny and regulation and legal exposure. This will ensure financial statement is scrutinized hence leading to reduced cases of errors and misrepresentation. In addition, stiffer penalty can also be introduced to decrease individuals who engage in fraud. This can be instituted by providing stiff penalties to those individuals found manipulating financial statements.

The number of times a company has involved itself in restatement speaks a lot on its trustworthiness.  Various stakeholders and investors are very attentive on how their company’s financial statement is. Therefore, any leadership of a company needs to be cautious on restatement of their companies to be able to project positive image and earn investor and stakeholder confidence. Many of the investors and stakeholders may not trust in a company that repeatedly restates its financial statement.  Investors may tend to shy away or reduce their confidence in the company and look for other investment opportunities. Furthermore, prospective employees will not be convinced to make a decision of investing in a company, which had previously restated its financial statement for fear of or perceived poor management ability. Therefore, such companies may not perform well as investors would have lost their faith in the management. Therefore, the impact of trustworthiness on the leadership team of a company include lack of confidence and reliability, reduced level of investors and poor performance of the company in the long-run due to perceived management failure.

References

Bhattacharyya, A. (2008).  “Time for us to consider restatements.” Business Standard (New          Delhi) (February 25).

Plumlee, M., & Yohn T.L., (2008). “An analysis of the underlying causes of restatements.”           Working paper.

SEC Advisory Committee on Improvements to Financial Reporting.  (2008). Final Report of the   Advisory Committee on Improvements to Financial Reporting to the United States      Securities and Exchange Commission, 6.

Todd, D. (2009). What are the leading causes of financial restatements? Retrieved form:             http://www.qfinance.com/contentFiles/QF02/g1xtn5q6/12/3/what-are-the-leading-causes- of-financial-restatements.pdf

United States General Accounting Office (GAO). (2002). Financial Statement Restatements:        Trends, Market Impacts, Regulatory Responses, and Remaining Challenges. Washington,   DC: GAO.

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