The revision and re-release of the financial statements of a prior period because of changes in accounting principles arising out of new accounting standards/ regulations or new standard operating procedures (SOPs) or due to identification of material accounting errors in financial statements and reports. Example of accounting error is revenue errors and compensation errors (failure to correctly account for stock options, stock awards, and other similar expenses). The objective of restatement is to correct errors and misstatements. Restatements are required when an entity determines that a previous statement or set of statements contains “material” inaccuracy.

Depending on error materiality, restatements come in two types:

• Little R restatement (also referred to as a revision restatement): correction of an immaterial error in the prior period financial statements;
• Big R restatement: (also referred to as re-issuance restatement): correction of a material error in the prior period financial statements. This restatement requires the entity to restate and reissue its previously issued financial statements in order to reflect the correction(s) it made in those financial statements.