Errors in Audited Financial Statements and Restatement – Evidence from Brazil

Abstract

The main objective of this study was to analyze the pattern of accounting events that signals error in audited financial statements and resulted in restatement in Brazil during the periods of 2000-2009. The study which is characterized as interpretative, borrows a leaf from the contexts studied by academics and practitioners worldwide by reflecting upon the phenomenon of restatement through narrative approach. The study identified that 2008 restatement was comprised of 3rd Quarterly Financial statement reporting, motivated by errors in reporting financial instruments (derivatives, swaps, hedges) interpreted wrongly by companies with incorrect policies or have had lukewarm attitude on their treatment. This made up of approximately 43% of the restatements listed during 2000-2009. There was also evidence from our study that shows that restatements had institutional causality. Others were organisational accounting policies, tax contingencies, risk assumptions, items treated as others, to mention just a few. With the trend of things, evidence suggests that the financial reporting environment — securities regulators, independent auditors, the security markets themselves appear to be successfully causing firms who are caught in violation of financial accounting rules to reform their financial reporting policies through restatement. We arrive at this conclusion as a result of the perceived increase of restatement generated recently.