In 2021, SPACs will drive a surge in restatement.

According to Audit Analytics' latest annual review, the total number of restatements and individual companies disclosing restatements in 2021 reached their highest levels since 2006. However, excluding restatements by special purpose acquisition companies (SPACs), total 2021 restatements fell 10% from the previous year.

The study, which was released last week, looked at trends in public company restatement from 2001 to 2021. In 2021, 1,470 companies, including SPACs, filed restatements, up 289 percent from 2020. According to the report, in 2021, 12.7 percent of public companies restated their financial statements, up from 4.8 percent in 2020 and 13.6 percent in 2006.

Restatements decreased by 10% when SPACs were excluded, and the number of individual companies disclosing restatements decreased by 15%. The study credits improved reporting and a decrease in the number of Securities and Exchange Commission registrants for the continued decline in non-SPAC restatements seen over the last seven years.

In 2021, large accelerated U.S. filers accounted for 10.2% of all restatements analyzed, compared to 22% in 2020. Accelerated filers in the United States made up 4.5 percent of the total, down from 20.6 percent in 2020 and the lowest level since 2003.

Non-accelerated U.S. filers, on the other hand, accounted for 73.1 percent of restatements in 2021, up from 40.7 percent in 2020 and the highest percentage since 2008.

Debt and equity securities were the most common accounting area of restatement in 2021, up from 14.3 percent in 2020, excluding SPAC-centered restatement for redeemable shares and warrants. This was the first year that revenue recognition did not come in first place (12 percent in 2021, compared with 17.3 percent in 2020).

Liabilities and accruals (11.7 percent), general expenses (10.9 percent), tax matters (8.8%), cash flows (7.3 percent), and share-based compensation and acquisitions and divestitures (7.3 percent) were also common areas for restatement in 2021. (each at 7.0 percent).

In 2021, restatements had an average negative impact on net income of $6.6 million, with 26% of restatements having a negative impact (32 percent excluding SPACs).

The report used several statistics to assess the severity of the restatements, with higher numbers indicating greater severity.

In 2021, the average number of issues per restatement was 1.85 (1.4 without SPACs), up from 1.52 in 2020. In 2005, the highest average number recorded in the report was 2.46.

In 2021, the percentage of financial statement restatements included in annual reports that required an audit of the restated financial statements was 33%, down from 58 percent in 2020. This was the lowest level in the 21 years studied. However, when SPACs were excluded, the 2021 result was 61 percent, which was more in line with the 2018-20 results.

In 2021, the average number of days it took to file a restatement fell to around seven (26 days excluding SPACs), compared to 37 days in 2020. Between 2016 and 2019, the average days increased year over year.

When excluding SPACs, the average number of days in the 2021 restatement period fell to 288 but remained relatively flat at 441 compared to 2020 (460). The finding marks the fifth consecutive year of decline.

According to the study, the proportion of restatements made by revision (correcting errors by revising previous periods in the current year's financial report) for domestic filers, excluding SPACs, is expected to be around 76 percent in 2021, which is consistent with previous years' figures (79 percent in 2020). Reissue restatements, excluding SPACs, were at 24% in 2021, up 3% from the previous year.

Since 2014, the proportion of reissuance restatements has remained stable at around one-fifth of all restatements. Reissuance restatements to correct a material error, on the other hand, accounted for one-quarter (24%) of all restatements in 2021.

For domestic filers, the overall trend for the study period was a decrease in the percentage of reissuance restatements and an increase in the percentage of revision restatements. In 2021, the overall reissuance restatement percentage was 62 percent, including SPAC restatements.