A Survey of Restatement Literature: Determinants of Misreporting

We survey the literature on the determinants of financial restatements in the United States. We frame our review around a managerial cost-benefit perspective: managers misreport when the expected benefits outweigh the expected costs, conditional on their personal characteristics. Accordingly, we synthesize prior findings along three dimensions: (1) managers' expected benefits of misreporting (e.g., capital-market pressure, compensation incentives), (2) managers' expected costs of misreporting (e.g., detection by auditors, regulators, or governance mechanisms), and (3) managerial characteristics that shape these costs and benefits (e.g. CEO age). A key insight from our review is that inconsistencies across studies often reflect differences in research design, particularly how "materiality" is defined, and whether determinants are measured during the misreporting period or around the year of the restatement announcement. We highlight methodological pitfalls in the use of restatement data, and outline directions for future research. Our review offers guidance for scholars, regulators, auditors, and boards seeking to better understand, measure, and ultimately reduce financial misreporting.