Understanding the Restatement Process

Much research examines investors' reactions to restatements and the effects of restatements on chief executive officer (CEO), chief financial officer (CFO), and auditor turnover; however, little research explores the process of restating financial reports. In this study, we investigate the process of issuing a restatement. We specifically focus on the interactions among the parties involved (e.g., CFO, board, audit committee, audit partner, and regulators) in determining and ultimately resolving a restatement, as well as the impact of the restatement on the relationships among these parties. We investigate the restatement process via semi‐structured interviews. We immersed ourselves in the restatement process by interviewing all parties typically involved, such as CFOs, auditors, and regulators. Given the findings in the auditor–client management negotiation area, which suggest that negotiation of accounting treatment and disclosure is frequent, our findings indicate that negotiations and/or difficult discussions take place among the parties involved when determining whether a restatement is necessary as well as in achieving the ultimate restatement outcome. Our findings (based on a small sample) suggest that the restatement process may influence or be influenced by such factors as the nature of the misstatement, the party that identified the misstatement, the reaction of the various parties to the misstatement, disagreement among the parties on whether to restate, communication with the regulator, the press release, client size, the personality of the CFO, audit committee strength, and the relationships among the parties subsequent to the restatement. Comprendre le processus de retraitement Résumé Maints chercheurs ont étudié les réactions des investisseurs aux retraitements et les répercussions de ces retraitements sur la rotation des directeurs généraux (DG), des directeurs financiers (DF) et des auditeurs. Peu d'entre eux se sont cependant intéressés au processus de retraitement des rapports financiers. Les auteures s'intéressent au processus d'établissement d'un retraitement. Elles se penchent plus précisément sur les interactions entre les parties en cause (par exemple, le DF, le conseil d'administration, le comité d'audit, l'associé d'audit et les autorités de réglementation) dans la décision relative à la nécessité du retraitement et sa réalisation ultime, ainsi que sur l'incidence du retraitement sur les relations entre ces parties. Elles analysen