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ARTICLE · 22 MARCH 2022

SEC OCA Waves Big Red Flag About "Little R" Restatements

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SEC Acting Chief Accountant Paul Munter released a statement last week, Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors (the "Statement"), ...

United StatesAccounting and Audit
Jonathan Wolfman
Jonathan Wolfman
Alan Wilson
Alan Wilson
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SEC Acting Chief Accountant Paul Munter released a statement last week, Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors (the "Statement"), that is sure to become required reading for any company analyzing errors in its financial statements.

Pointing to statistics about the increased incidence of "little r" restatements relative to all restatements (76% in 2020, up from 35% in 2005), the Statement expresses skepticism around the materiality determinations conducted with respect to identified errors and the resulting conclusion as to the appropriateness of a "little r" restatement. 

Background

When an accounting error has been identified, an analysis must be undertaken to assess whether the error is material and must be corrected by restating prior-period financial statements (i.e. a "Big R" restatement) or whether the error is not material to previously-issued financial statements and may instead be corrected in the current

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