What is an Earnings Restatement?

An earnings restatement, also called an earnings recast, is the act of disclosing amended financial statements.

How Does an Earnings Restatement Work?

Let's assume Company XYZ sells its pharmaceutical division to Company ABC. The pharmaceutical division was a significant generator of revenue for Company XYZ.

After the sale, it issues an earnings restatement by disclosing the last five years of financial statements -- with the pharmaceutical division excluded.

Why Does an Earnings Restatement Matter?

Earnings restatements can be corrections in financial statements, but they can also help investors get a comparative sense of how a company is performing without a recently divested asset, with a change in accounting method, or with some other significant change in operations.