Restatement
Categories: Accounting
Do this. Or...do this! Or...do thissssss.
Okay, we restated it 3 times. Each time was a bit different. Did you notice?
Well, in Street parlance, a restatement happens when a company has somehow wrongly reported its financials in one form or another, and the auditors believe that the bottom lines are confusing enough, such that the company must file a do-over and restate what they thought they'd said accurately last quarter.
That is, the company is now having to recognize all of its marketing expenses as expenses. They can't capitalize them and amortize them over the expected 3-year life of the customer who subscribes monthly to their service. They had been taking that $100 million marketing spend in the quarter and, on the income statement, only recognizing 1/36 of it per month, or 3/36 per quarter, or 1/12th, or about $8 million. Instead, the auditors are saying that they have to recognize all of it in the quarter in which the money was committed to be spent.
So now the company's CFO and accountants have to go back and redo their financials to reflect the much larger losses on the income statement than what had previously been thought. And that's usually really bad for the stock price, so...look out below when the first post-restatment requirement has been blared broadly, and the first price prints.
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Finance: What is Adverse Audit Opinion?27 Views
Finance a la shmoop. What is an adverse audit opinion and you know deficiency
letter. Okay people this is not good you thought you had good grades but when [Report card is thrown onto the desk]
you got your report card your teachers had opinions adverse to yours... [Report card has bad grades in it]
They sent your parents a deficiency letter you know the one with all those [Mom looks shocked]
D's on it well when it's a company's audit that has similarly gone awry it's [Boss looks angry and employee looks shocked]
the nice way to say it well then it means they didn't count the beans
properly when they gave their financial reports to their investors or whoever
the auditors were serving usually this implies that companies overstated how [Employee counting coffee beans]
profitable they really were or how well they were really doing so tens of
thousands of investors if you know the company was public when this all [Big line of people waiting to invest]
happened paid twenty seven dollars and 32 cents a share when with the real
numbers the stock probably should have been trading more at like you know
fourteen dollars and 27 cents a share big difference well basically an auditor
is saying that yours are not bread-and-butter misstatements no oops [Bean report with the numbers crossed out]
it's more of a dude there were material ie important
mistakes and they were pervasive like everywhere math, science, english, history
your failure it's no mystery that's how auditors talk really
all right well then there are massive losses to massive numbers of people who hire [Protesters on a street]
massive numbers of lawyers who sue you.. massively.. in the world of finance an
adverse audit opinion is a bit like running over everyone's favorite dog [Car goes over a bump]
several times only you're the one who is likely dead meat [Guy reverses and runs the dog over again and the owner comes to fight]