Not only have restatements declined in recent years, but the severity of the mistakes that lead to restatements has diminished as well.

That's the conclusion of a recent report from Audit Analytics, which compared how many times companies had to advise investors that old financial statements couldn't be relied on vs. how many times companies had to adjust financials in a way that didn't undermine investor reliance.

According to the research, 68.7 percent of restatements issued in 2009 involved mistakes that were not serious enough to require Form 8-K disclosure telling companies that the financial statements containing the error could not be relied upon for accurate financial information. By contrast only 46.6 percent of restatements in 2005 could be amended in the same way, without an alert to investors saying the old statements were not reliable.

The ratio of “revision” restatements, as Audit Analytics calls them, to “reissuance” restatements that compel a non-reliance forewarning has risen steadily from 2005 to 2009. The research showed the total number of restatements has fallen from a high of 1,619 in 2006 to 638 in 2009, and at the same time the “revision” restatements have increased as a percentage of overall adjustments.

To look at the severity of mistakes in another way, the research also examined how often companies correct old financial statements by filing an amended 10-K compared with simply correcting the mistake in the next annual report. Those numbers have held a little steadier in the past few years, with 44 percent correcting mistakes in the next 10-K in 2009 compared with 45.7 percent the year before and 48.8 percent in 2007.

The correction of mistakes in the next 10-K suggests companies may be finding mistakes in the prior year's financials as they ramp up to prepare for the upcoming 10-K in any given reporting year, says Don Whalen, director of research for Audit Analytics. “A lot of the discovery and determination about whether past financials have been undermined seems to occur probably during the whole effort the company employs to issue a 10-K,” he says.

Whalen believes both data points suggest internal control over financial reporting has improved in recent years, leading to fewer restatements overall and fewer serious mistakes that cause restatements. “The financial numbers are better because the controls are better,” he says. “If you do make a mistake, it seems to be discovered more quickly, and when you find small problems quickly, they're still small problems.”