A financial restatement is a formal and public correction of a firm’s previous financial activities. For a publicly traded firm—one that trades on a stock exchange and is owned by shareholders—a financial restatement is an acknowledgment that the information on its past financial statements was incorrect. Since most public firms issue formal financial information on a quarterly and yearly basis, financial restatements often correct errors from past quarters or years.

Typically, financial restatements are the correction of a firm’s balance sheet or income statement. The balance sheet records a firm’s assets, liabilities, and stockholder equity. The income statement records a firm’s revenues and expenses. Thus, financial restatements are formal and public corrections of errors on a firm’s past quarterly or annual balance sheets or income statements. ...

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