An Analysis of ‘Little r’ Restatements

An Analysis of ‘Little r’ Restatements

Christine E. L. Tan Fordham University Schools of Business

Susan M. Young Fordham University

November 1, 2014
Fordham University Schools of Business Research Paper No. 2407659

“Little r” restatements occur when a firm’s immaterial errors accumulate to a material error in a given year. Unlike “Big R” restatements, which must be reported through an SEC 8-K material event filing, little r restatements do not require an 8-K form or a withdrawal of the auditor opinion. This paper documents this previously unexamined form of restatement and analyzes the characteristics of the firms who have used this method of correcting accounting errors over the period 2009 through 2012. We find that approximately 12 percent of the companies in our total sample have little r restatements. Contrary to concerns voiced by regulators and research agencies, we find in univariate tests, that little r firms are generally more profitable, have lower leverage and stronger corporate governance than Big R firms and do not significantly differ from non-revising firms. We also find that the majority of these firms do not include any discussion of why these little r’s occurred. Policy implications related to disclosure are discussed.


Steady rise in cashflow restatement leads SEC to call on companies to tighten accounting procedures and controls pertaining to statement of cash flows

SEC Nudges Companies on Cash Flows

Tammy Whitehouse | December 23, 2014

The Securities and Exchange Commission is calling on companies to tighten accounting procedures and controls pertaining to statement of cash flows, amid a steady rise in restatements associated with that rather nettlesome financial document. Continue reading

Wall Street analysts call for billionaire Nicholas Schorsch’s resignation from REIT empire RCS Capital after a lawsuit was filed by a former accounting officer at a related firm claiming he told her to lie on the company’s financial statements

Nicholas Schorsch’s REIT empire is under siege

Schorsch’s future at RCAP is one of many issues confronting his vast real estate empire

By Bruce Kelly   |  December 21, 2014 – 12:01 am EST

It didn’t take long for Wall Street analysts to start calling for Nicholas Schorsch’s resignation from RCS Capital Corp. after a blockbuster lawsuit was filed last Thursday by a former accounting officer at a related firm claiming he told her to lie on the company’s financial statements. Continue reading

Hong Kong watchdog takes action against shortseller Citron for knowingly made “false and misleading” claims about Evergrande, the Chinese property developer

December 22, 2014 11:43 am

Hong Kong watchdog takes action against shortseller

Jennifer Hughes in Hong Kong

Citron Research has become the first shortseller to face action from Hong Kong’s watchdog, which alleges the California-based group knowingly made “false and misleading” claims about Evergrande, the Chinese developer. Continue reading

Tesco Faces Fresh Accounting Investigation; Auditor PWC Gets Unseasonal Greetings for Tesco and Barclays Roles

Tesco Faces Fresh Accounting Investigation

U.K.’s Financial Reporting Council Launches Probe

Tesco disclosed earlier this year that it had overstated its first-half profit forecast. REUTERS


Updated Dec. 22, 2014 8:34 a.m. ET

LONDON—The U.K.’s Financial Reporting Council on Monday said it has launched an investigation into Tesco PLC’s accounts for fiscal 2012, 2013 and 2014, following the recent accounting scandal at the supermarket chain. Continue reading

Meet Joe Lewis – The $200 Million “British Madoff”; Trader Joe Lewis in fraud inquiry disappears after walking out of police station

Meet Joe Lewis – The $200 Million “British Madoff”

Tyler Durden on 12/21/2014 18:15 -0500

In an oddly familiar echo of Bernie Madoff’s massive ponzi collapse, The Telegraph reportsa currency trader has vanished along with £130  million in investors’ cash in an alleged fraud that could be one of the biggest in recent British history. Joe Lewis, 59, is being investigated by police over almost $200 million which he claimed was in clients’ accounts (incluidng professional footballers and golfers) but now no longer exists. In a stunning email sent to clients 2 weeks ago, Lewis admitted that his company – JL Trading – had stopped operating in 2009 (after suffering heavy losses on disastrous FX trades), adding that “I have covered up my mistakes from everyone including my staff, no one else knew what was happening.” The father of two has since failed to answer emails and phone calls, and at his Istanbul apartment a doorman said he had not been seen for a few weeks. Continue reading