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Definition of 'Restatement'

A restatement is the correction of an error in a previously issued financial statement. This can be done for a variety of reasons, such as to correct a mathematical error, to reflect a change in accounting policy, or to make an adjustment for a new accounting standard.

Restatements are important because they ensure that financial statements are accurate and reliable. When an error is corrected, it can have a significant impact on the company's financial results. For example, a restatement of earnings could lead to a decrease in the company's stock price.

The process of restatement can be complex and time-consuming. It typically involves gathering all of the relevant information, reviewing the company's policies and procedures, and making the necessary adjustments to the financial statements. Once the restatement is complete, it must be filed with the Securities and Exchange Commission (SEC).

Restatements can be voluntary or mandatory. Voluntary restatements are made by companies when they discover an error in their financial statements. Mandatory restatements are required by the SEC when a company has violated accounting rules or standards.

Restatements can have a significant impact on a company's reputation and financial performance. Investors may lose confidence in the company if they believe that the financial statements are not accurate. This can lead to a decrease in the company's stock price and difficulty in raising capital.

Companies should take steps to prevent restatements by implementing strong internal controls and having their financial statements audited by an independent auditor.

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