§ 01
| Category | Treatment | Signal | Example |
|---|---|---|---|
| Change in Principle | Retrospective (restate prior periods) | Neutral to suspicious | LIFO → FIFO switch |
| Change in Estimate | Prospective only (current period forward) | Often exploitable | Extend asset useful life |
| Error Correction | Restate all affected periods | Most damaging | Revenue misstatement discovered |
§ 02
Estimate changes are the most easily exploited category. A company can extend asset useful lives from 10 to 15 years, cutting annual depreciation by one-third and boosting net income — all without restating a single prior-year number.
§ 03
Search SEC filings for any company that has filed a 10-K/A (amended annual report). Read the nature of the restatement and check whether the stock declined around the filing date.
§ 04
A new CEO’s first year includes a $400M goodwill impairment, $150M restructuring charge, AND extended depreciation lives from 8 to 12 years. What pattern is this?
§ 05
§ 06
A company files a Form 8-K restatement — they restated the prior 3 years of earnings due to a 'calculation error' reducing net income by $50M per year. Stock drops 15% immediately. Disciplined reaction?
Five questions · AI feedback
Sit with the ideas.
A newly appointed CEO's first-year 10-K includes: a $400M goodwill impairment, a $150M restructuring charge, a change in depreciation useful lives from 8 years to 12 years, and an increase in the estimated warranty provision. What pattern do you see?
Why: