The most obvious indicator of a company pertains to the frequent restatement of financial statements. For the most part, restatements actually indicate errors or misstatements occurring in reports previously filed on finances. This means that companies are sometimes required to restatement preceding reports on financial performance results. Although one or two could be mere honest mistakes, several restatements would likely be a problem with the process by which the company reports its finances.
These restatements of earnings may be an indication of weak internal controls and possibly even management fraud or attempt to conceal known mis-statement. Investors and analysts should look deeper into the explanations from the company of circumstances surrounding restatement that may be indicative of a more serious underlying problem.