Financial Statement Restatement

In: Business and Management

Submitted By stowesy
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Financial Statement Restatement

When a company makes an error in accounting, the lasting effects can have a great impact on how the external and internal users of this information perceive the organization. The following is an analysis of the effects of inaccuracies in a Bank accounting for its allowance for loan losses.

First National Community Bancorp Inc. (FNCB) in Dunmore, Pa., restated financial results for 2009 and two quarters in 2010 after an internal audit uncovered inaccuracies in its accounting for loans losses. The bank has $1.1 billion in assets and said in October 2010 that the financial statements previously filed with the Securities and Exchange Commission for the year ending Dec. 31, 2009 and the quarters ending March 31, 2010 and June 30, 2010 had to be restated (Stewart, 2011).

The analysis of the internal audit found that accounting charges and loan-loss allowances that were previously recorded in 2010 should have been reported in 2009. As a result, the company restated its 2009 financial statement to reflect a loss of $44.3 million, a much larger loss than the $11.3 million loss it initially reported. This adjustment included a $10.1 million addition to the provision for loan and lease losses, $14.5 million additional charges related to other-than-temporary impairment in the securities investment portfolio and an $8.1 million goodwill impairment charge. For the quarter ending March 31, 2010, FNCB reported loss of $825,000 after initially reporting a $2 million profit; and for the June 30 quarter it now lost $5.2 million, not the $1.7 million in first reported. The adjustments arose again from additions to its loan-loss provisions, more charges related to other-than-temporary impairment in the securities portfolio and a reduction in the credit for income taxes (Stewart, 2011).

The effects of FNCB’s restatements on stockholders are…...

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