New research contains doses of good news and bad news for chief financial officers (CFOs) and chief tax officers (CTOs) striving to avoid financial statement errors.
Research firm Audit Analytics reports that 663 publicly listed U.S. companies filed financial revisions or restatements in 2015. That’s good news. The Wall Street Journal reports that this figure represents a 60 percent reduction compared to the number of financial revisions or restatements that occurred 10 years ago – and a 14 percent decline compared to 2014.
The bad news? The primary causes of these financial statement corrections appear unlikely to improve any time soon, as CFOs and CTOs know all too well. Here are the top three culprits of financial statement corrections, according to Audit Analytics:
- Debt and equity
- Cash flows
The research firm also finds that more than half of all 2015 financial statement revisions (which are smaller and have no material impact on how companies report their performance) and restatements (larger mistakes with a material impact on past financial reports) involved those three areas.
There’s some more good news. Audit Analytics indicates that restatements accounted for only 24 percent of 2015 corrections, which marks a dramatic improvement compared to 2005 when these serious corrections accounted for 68 percent of all corrections.
The Journal cites experts who lay the blame for tax-based financial errors on complex tax codes, given that current forecasts show a high probability of increasing tax complexity (this could be considered more bad news). The good news is that tax professionals and technology providers are working to develop solutions to address these complexities. These solutions can lead to more reliable and readily available financial information, as well as improved control since tax technology automation can help businesses become more operationally efficient.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.