An Overview of European Financial Restatements

There have been roughly 500 financial restatements disclosed by nearly 400 companies listed on exchanges in the EEA, UK, and Switzerland since January 1, 2018.1

According to IAS 8, “Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements. Financial statements do not comply with IFRSs if they contain either material errors or immaterial errors made intentionally to achieve a particular presentation of an entity’s financial position, financial performance or cash flows. Potential current period errors discovered in that period are corrected before the financial statements are authorised for issue. However, material errors are sometimes not discovered until a subsequent period, and these prior period errors are corrected in the comparative information presented in the financial statements for that subsequent period.”

The international accounting standard goes on to explain, “an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:

  • restating the comparative amounts for the prior period(s) presented in which the error occurred; or
  • if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.”

Worth noting, the IASB amended the definition of material on January 1, 2020, defining it as: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”

Meanwhile, the US definition of material is based on a Supreme Court decision, “a substantial likelihood that the . . . fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.”

The key difference to note in these definitions is “primary user” versus “reasonable investor”, with the latter having a higher threshold.

Nevertheless, when correcting or restating a prior period error according to IAS 8, an entity must disclose the following:

The Europe Financial Restatements database, our most recent addition to Audit Analytics, tracks corrections of errors affecting the financial statements due to clerical error, misapplication of accounting standards, or fraud (collectively “restatements”) in accordance with IAS 8.42 or equivalent accounting standards.

This database contains financial restatements disclosed in English across the 8,000+ companies listed on exchanges in the EEA, UK, and Switzerland since January 1, 2018.

The map below shows a breakdown of financial restatements (disclosed in English) across Europe by company headquarter location since January 1, 2018.

The United Kingdom, accounting for 32% of restatements across Europe, has had 75 companies correct prior period errors since 2018. Germany, with 17% of restatements, saw 40 companies restate. Meanwhile, in Poland, 29 companies restated, accounting for 14% of restatements across Europe.

A variety of errors may arise when issuing financial statements for several reasons, ranging from minor clerical errors to more severe fraudulent practices. When such an error is identified, a correction must be made. The scope and nature of the correction dictates a company’s next steps and can provide useful information into the health of a specific company, as well as overall financial reporting trends.

We look forward to providing you with even more analyses highlighting this groundbreaking new database in the coming weeks and months. Stay tuned!

1. Includes only restatements disclosed in English since 2018-01-01.

For more information about Audit Analytics or this analysis, please contact us.

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