Financial Statement Restatement
Whether a business is large or small does not exempt it from errors. The number of errors in financial statements has risen in publically held companies. When changes in accounting principles occur, companies need to be aware of these changes and make the necessary adjustments within the guidelines of the generally accepted accounting principles (GAAP). The effect of errors and changes on financial statements affects the stockholders and companies are put at risk of losing the trust and confidence of their financial statement users, investors, and customers. Overstock.com is an example of a company with accounting errors that they announced in early 2009. Below is an overview of the issues that led to the recent restatement of Overstock.com’s financial statement. In October 2008, Overstock.com disclosed new customer credit and refund accounting errors and restated all financial statements from Q1 2003 to Q2 2008 to reflect a $12.9 million decrease in revenue and a $10.3 million increase in net loss (Kanaracus, 2008). Overstock.com announced a restatement of its financial statements because of a violation of GAAP for the second time in the past two years. Overstock.com restated the previous financial statements to rectify the company’s customer credit and refund errors. Partners of the Overstock.com were under billed because of an accounting error in 2008. Overstock.com chooses to record this entry inaccurately, which falsely increase revenue, causing them to record inaccurate profit in 2008. A number of accounting principles were violated in Overstock.com restatement of the year end 2008 financials. The first is revenue recognition principle, which states improper revenue accounting includes instances in which revenue was improperly recognized and questionable revenues were recognized or any other number of related errors that led to misreported revenue (Kieso, Weygandt, & Warfield, 2007). The partners of...
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