Financial Restatement
Financial Restatement
Kelly Ableman
ACC/537
July 14, 2013
Dr. Anthony Matias
Financial Restatement
Every company makes errors in their everyday activity. These errors can be anything from miscounting boxes to ordering the wrong item or even putting the wrong numbers on the balance sheet, whether on accident or purpose. This paper will discuss one company in particular that had such an error; how this accounting error affected the company and their shareholders and what this company did to correct the error.
According to the textbook there are three different types of accounting changes which are: change in accounting principle, change in accounting estimate, and change in reporting entity; the textbook also states that there is a fourth category that necessitates changes in accounting even though it is not actually classified as an accounting change. This fourth category, errors in financial statements, is the change being discussed in this paper.
On December 28, 2012, Formation Fluid Management (FFM) reported that they would need to restate their annual consolidated financial statement due to an internal review discovering there had been a theft of $188,716 during year ending June 30, 2011 and $18,311 during year ending June 30, 2012 (sedar.com). For the theft in 2011, this restatement decreased FFM’s recorded amounts of receivables, prepaid expenses and equipment by $104,254; a reclassification of expense items totaling $84,462; and a provision for contingency of $188,716. This restatement resulted in a reduction in the loss for the year of $104,254. The theft in 2012 will be recorded as an additional provision for contingency until the company can determine recoverability (FFM Files Restated).
This restatement has shown that the company, which was already steadily declining in profits (sedar.com), will have an even larger loss due to this unfortunate event. In their statement to the shareholders the issue was explained as well as the reason for
Kelly Ableman
ACC/537
July 14, 2013
Dr. Anthony Matias
Financial Restatement
Every company makes errors in their everyday activity. These errors can be anything from miscounting boxes to ordering the wrong item or even putting the wrong numbers on the balance sheet, whether on accident or purpose. This paper will discuss one company in particular that had such an error; how this accounting error affected the company and their shareholders and what this company did to correct the error.
According to the textbook there are three different types of accounting changes which are: change in accounting principle, change in accounting estimate, and change in reporting entity; the textbook also states that there is a fourth category that necessitates changes in accounting even though it is not actually classified as an accounting change. This fourth category, errors in financial statements, is the change being discussed in this paper.
On December 28, 2012, Formation Fluid Management (FFM) reported that they would need to restate their annual consolidated financial statement due to an internal review discovering there had been a theft of $188,716 during year ending June 30, 2011 and $18,311 during year ending June 30, 2012 (sedar.com). For the theft in 2011, this restatement decreased FFM’s recorded amounts of receivables, prepaid expenses and equipment by $104,254; a reclassification of expense items totaling $84,462; and a provision for contingency of $188,716. This restatement resulted in a reduction in the loss for the year of $104,254. The theft in 2012 will be recorded as an additional provision for contingency until the company can determine recoverability (FFM Files Restated).
This restatement has shown that the company, which was already steadily declining in profits (sedar.com), will have an even larger loss due to this unfortunate event. In their statement to the shareholders the issue was explained as well as the reason for
References: FFM Annual statement. Retrieved from website http://sedar.com/CheckCode.do;jsessionid=0000rivgtZE4MajtO7elvrqPmQE:17lkkjui4 on July 14, 2013. FFM files restated financial statements. (2012). Professional Services Close - Up, Retrieved from http://search.proquest.com/docview/913624417?accountid=458 on July 14, 2013. Fridson, M. S. (2003). Unaccountable: How the accounting profession forfeited a public trust. Financial Analysts Journal, 59(5), 98-100. Retrieved from http://search.proquest.com/docview/219219639?accountid=458 on July 14, 2013. Hylas, R. E., & Ashton, R. H. (1982). Audit Detection of Financial Statement Errors. Accounting Review, 57(4), 751. Retrieved July 14, 2013. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate accounting (12th ed.). Chapter 22. Hoboken, NJ: Wiley. Retrieved July 14, 2013.