Since 2013, the number of Canadian financial restatements has been trending downward. In 2019, 111 unique companies in Canada – SEDAR registrants that trade on a Canadian exchange – issued 118 restatements, compared to 171 in 2010, a nearly 31% decrease.
There was a small increase in the number of restatements disclosed by Canadian companies in 2019 compared to 2018, but the number of restatements has remained relatively stable since 2014.
This is a slightly different trend than we noticed in our 2018 Financial Restatement Report for US filers; after six years of relatively steady restatement totals from 2009 to 2014, the number of total restatement disclosures dropped consistently four years in a row. However, both the US and Canada saw a historically low number of restatements in 2018.
Similarly, Canadian and US companies that disclosed a restatement in 2018 saw a record low average number of days corrected by the financial adjustment (the restatement period). Consistently since 2010, the restatement period for Canadian companies has been shorter than that of US companies.
The average number of days in a restatement period disclosed in 2019 was 394, up 10% from 2018. Since 2010, 2018 is the only year that the restatement period has spanned less than one year.
The most extensive restatement period was disclosed by ATS Automation Tooling Systems Inc. [ATS] in 2011 and encompassed 11 years, between April 1, 1998 and March 31, 2009:
In the nine months ended December 26, 2010, it was determined that a pension obligation that was originally assumed in 1998 should have been previously recognized. This arrangement has been recorded with an adjustment to decrease retained earnings as of April 1, 2009 by $2,000 (net of tax of $nil) with a corresponding increase in accounts payable and accrued liabilities.
Despite the lengthy restatement period, the adjustment had no material impact on reported earnings, cash flows, or earnings per share in prior periods.
The majority of financial restatements disclosed between 2010 and 2019 had a negative impact on company financials – though, not necessarily a material impact. In 2014 – the year that the overall number of restatements noticeably declined – there was an increase in the percentage of restatements that had a negative impact. This indicates there were less restatements disclosed by Canadian filers, but a larger percentage of those restatements had a negative impact.
Overall, the average number of issues cited in restatements has seen little variation since 2016, hovering just below 1.5 issues per restatement. In 2019, there were 1.49 issues, on average, per restatement.
There have been noticeable shifts in the most commonly cited issues in Canadian restatements between 2010 and 2019. The most commonly cited issue in 2019 was debt, quasi-debt, warrants & equity (BCF) security issues, but that has not consistently been the number one issue cited. In 2019, the second most common issue cited related to acquisitions and mergers, followed by expense recording issues.
Between 2010 and 2017, taxes was one of the most commonly issue cited for restatements; in 2018 taxes were edged out of the top five issues by revenue recognition and stock-based compensation.
Interestingly, in 2019, revenue recognition was the eighth most common issue cited for restatements by Canadian filers. For US filers, revenue recognition was the top issue cited in 2018, overtaking debt, quasi-debt, warrants & equity (BCF) security issues, which was the most commonly cited issue between 2005 and 2017.
The most complex restatement in this population, citing ten issues, was disclosed by Namaste Technologies [N]. Namaste, a company involved with developing online platforms for the cannabis industry, disclosed a restatement in 2018 – encompassing September 1, 2015 to November 30, 2017 – related to incorrect accounting for certain transactions. Issues cited in the restatement include acquisitions/mergers, expense recording, legal, contingency and commitment issues, and taxes.
The Audit Analytics Canada restatement database tracks all material financial restatements disclosed by Canadian issuers and normalizes all accounting and accounting-related issues. The database currently contains over 3,210 restatements for 2,203 unique companies since 2006.