Case Study Consider A Consulting Engagement

1.) Consider a consulting engagement and describe how you might relate the purpose and findings in this research article to your client.
The purpose of this study was to determine how the market would react to companies that were announcing restatements. This information could be very useful for companies that are in situations where they need to make a restatement or for a consulting company that has a client in this situation. It is obvious that the market is most likely going to act in a negative manner to a company that is restating its financial statements; however, the severity of the reaction can differ based on the causes.
Not surprisingly, the study found that the market reacted more negatively to restatements involving fraud. This …show more content…
Along with mitigating risks for fraud, a risk consultant would also want to take these into account. They might suggest that the company put controls in place that would keep errors isolated, rather than carrying over into other accounts. They also would suggest having more controls over core accounts as the market reacts more negatively towards restatements involving significant accounts. If a company is going to announce a restatement a consultant would suggest to the company to be up front and notify investors of exactly how much the company needs to restate. If investors are uncertain and not confident regarding the extent of the error, they are going to have a much more negative reaction. Finally, the market tended to have a much less negative reaction to companies that restated as a result of a technical error. This is probably because the accounting standards and codes can be so complex that the market can understand misinterpretations by companies. A consultant may suggest businesses to focus less on technical aspects and more on issues mentioned above that may cause a more negative market