Restatements made a modest comeback in 2010 after spiking in 2006 and then trailing off over the past three years, according to the latest data from Audit Analytics.

Driven primarily by problems accounting for debt and an increase in non-accelerated filer restatements, the total number of restatements in 2010 reached 735, an 8-percent increase over 2009 restatements. Accelerated filers accounted for 136 of the 2010 restatement total, down from 142 the year before. Foreign accelerated filers also showed a decline, filing only a dozen restatements in 2010 compared with 14 the year before.

Non-accelerated filers, however, more than made up the difference. U.S. non-accelerated filers turned in 424 restatements in 2010, up from 385 the year before. Foreign non-accelerated filers posted 127 restatements in 2010, up from 99 in 2009, according to the AA report.

In analyzing the causes for restatements, the firm's analysis notes a spike in 2010 in restatements involving debt, quasi-debt, warrants, and equity security issues. That category accounted for a steady decline in restatements from 2006 to 2009, but jumped from 119 restatements in 2009 to 160 in 2010.

The report notes companies had some new guidance to follow in 2009, namely EITF 07-05, focused on determining when a particular instrument or embedded feature in an instrument should be indexed to a company's own stock. (The guidance is now contained in the Accounting Standards Codification at Topic 815 on derivatives and hedging.) Where before the guidance companies commonly treated such instruments as equity, the new guidance categorized them more often as a liability, AA said. “Many companies that did not adhere to the guidance in 2009 found themselves restating their financial statements in 2010 in order to reclassify warrants as a liability,” the report said.

Despite the increased number of restatements overall, the nature of the errors that led to restatements were no worse than they've been in earlier years, the firm said. In analyzing the corrections, the firm said 2010's mistakes had an equal or less severe effect in terms of the damage to net income, the length of time that the errors were allowed to linger uncorrected, and the number of issues that needed to be corrected. The data also suggests that more than half of the restatements involved corrections that did not involve a determination that past financial statements could no longer be considered reliable.

The firm's 10-year tracking shows restatements peaked in 2005 and 2006 as Sarbanes-Oxley took full effect and companies struggled with internal controls over financial reporting. Restatements gained steam in 2004, reaching 945, then jumped to 1,550 in 2005 and 1,795 in 2006. They fell back to 1,215 in 2007, then fell further in 2008 and 2009 to levels more consistent with pre-Sarbanes-Oxley times.

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