Misstating financial statements is a significant accounting quality red flag. Unreliable financial statements reduce stakeholder confidence in companies and the ability of their control environment to prevent or detect errors. Misstatements also expose companies to increased shareholder litigation and regulatory risks. Companies that are required to make an adjustment to their financial statements also face challenges with their control environment and potential costs to strengthen their control environment.
In this article, Audit Analytics further breaks down the risks associated with specific firm-level events included in the Accounting Quality + Risk Matrix (AQRM).