Introduction
Restatement of a company is the correction of a previously issued statement due to either some irregularity or some mistake in the accounting process. There are different types of errors; they include errors of omission, commission, and principal. The discussion involves a pharmaceutical company by the name of Cyclacel pharmaceuticals that produce drugs that provide treatment of cancer and other diseases.
Discussion
Its restatement was due to an error of commission, which was some miscalculation of the net loss per share that related to payment of 6% preferred stock. The error had resulted in the payment of dividends to the preferred shares even though the company had made losses. The payment was to be accrued to the wrong dividend account. Though the company accrued the unpaid dividend, it didn’t include the amount when calculating diluted loss per common share for the year ended December 31, 2009. The net loss per common share was thus revised from $0.88 to $0.94 per share. This was later amended to the annual report to help in the consolidation of statements of cash flows related to dividends of preferred stock, though it did not affect the timing or the amount of the net cash flows. The errors would affect the price per share and the giving of shares, but it would not affect the profit and loss account and the balance sheet (Gauthier, 2002).
The accounting principle is guidelines used in financial accounting for given jurisdiction known as accounting standards, which include the standards and convection rule of accountancy (Arens & Loebbecke,2003). For this case, the miscalculation brings about the principle of permanence of the method as the required is not attained due to the errors. (Gauthier,2002). The errors had increased the amount of debt of money the stockholders were demanding from the company. It is also clear that the price per share would decrease from the original $1.23 to $1.21. This would lead to stockholders incurring some loss in a time of sale. It would discourage the stockholders and they would lose trust with the company and some would opt to sell them when the price went up. This was because the company was making only losses and they still had not yet been paid their outstanding balance. The time of price decrease would also be considered as the time to buy the shares and in this case, most investors buy more of these shares. But this would not apply for this case as many investors like a company that gives dividends and yet have high returns.
Conclusion
The restatement of the company has helped in reducing some risks that would not only be detrimental to the company but also the investors at large. It can be found out that; the accruing of more money to the dividend account would have minimized the return of the company, the reduction of the price per share, and thus this would have discouraged the stockholders. The failure to pay a dividend to stockholders would affect the outlook of the company to investors. The restatement also helped in restoring the faith with the company as the stockholders see the dedication of the company and its faithfulness in correcting and taking responsibility for errors. Lastly, restatement helped the company from making a miscalculation that would have been carried all long and would be very detrimental in the long term.
Reference List
Arens, A., & Loebbecke, J., (2003). Auditing, an integrated approach: New York: Prentice-Hall.
Gauthier, S., (2002). Governmental Accounting, Auditing, and Financial Reporting. New York: Oxford University Press.