Audit Analytics has completed a supplemental analysis to its 2008 Restatement Report, released February 2009. This supplemental is focused on the financial consequences of stealth restatements which, as revealed in the February report, constituted over 50% of all restatements for the first time in 2008.

Some interesting points revealed by the analysis include:

• The Big 4 accounting firms filed only 32% of cash-flow stealth restatements while filing 61% of non-stealth restatements.
• Most stealth restatements analyzed showed small adjustments to financial statements. A significant proportion (28%) however, provided adjustments greater than +/-10%.
• Restatements filed for "Cash flow statement (SFAS 95) classification errors" had a stealth restatement rate of 60.2% compared to restatements filed for "Revenue recognition issues," which had a stealth restatement rate of 34.7%.

A financial impact review of stealth restatements provides useful insight because a restatement that does not undermine reliance on prior financial statements need not be disclosed in Item 4.02 of an 8-K and may be filed as a stealth restatement.

For more information on stealth restatements or other research by Audit Analytics please view the report or email us at info@auditanalytics.com.

As always, feel free to contact us with comments and suggestions.