Financial Report Restatements: Evidences from the Brazilian Financial Market

Abstract

Corporate Financial Statements are the means through which financial and economic information is communicated to those outside the organization. A financial statement restatement occurs when a company has to revise its public financial information that was previously reported. Recently, organizations like Enron and WorldCom, among many others have been involved in fraud and restatement scandals, which have raised questions about the role of accounting regulators in financial statements disclosure. According to CVM, which is the Brazilian regulator agent for the financial market, financial statements disclosure must attend the specifications of Act 338/2001. Failure to attend those specifications will lead to a CVM notification, and a need for corporate financial report restatement. This paper analyses financial reports restatement in the Brazilian financial market scenario during the period between 2001 and 2004. A total of 18 companies were required to restate their financial statements during this period. The results of this study showed that the most common causes that have lead to financial report restatement are: marketable securities and contingent assets and liabilities. Regarding auditor's opinion, of the total of 18 companies, only 2 of those had a clean opinion (unqualified opinion), the other 16 had a clean opinion with an explanatory paragraph.