An explosion in accounting errors—in part reflecting the difficulties of today’s complex rules—has forced numerous companies to learn the art of restatement.
When Mark Blinn became Flowserve’s finance chief in November 2004—ten months after the company uncovered accounting errors and announced that it would restate past results—his first job was to help staffers shake off the negativity. “I didn’t want them to feel tainted,” he says, “or that we all of a sudden wore a scarlet A.”
The lesson in positive thinking, not to mention many other restatement-related exercises, lasted another 15 months. Initially attributed to “isolated computer-system implementation difficulties,” the problems ultimately extended to numerous material weaknesses in internal controls. By early 2006, when Flowserve, a Dallas-based maker of industrial pumps, seals and valves, finally filed restated reports going back to 2000, Blinn himself had a new outlook. “Restatements aren’t something to fear,” he says. “They’re a fact of life.”
Certainly not a very pleasant one. “It’s almost like a death in the family,” says Trent Gazzaway, national managing partner of corporate governance for audit firm Grant Thornton in North Carolina. In cases where fraud or some premeditated accounting abuse is at the root of the errors, fear of litigation or prosecution adds to worries about how to correct the numbers and re-establish internal controls. “But the same feelings—just not of the same magnitude—occur when there’s simply a flat-out miss,” Gazzaway adds. “It can permeate the whole organisation.”
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