Restatement of Financial Results
This paper reviews the restatement of financial results of Kodiak Energy, Inc. for the fiscal quarter ended September 30, 2007 and the year ended December 1, 2007. The company was forced to issue a restatement because of financial accounting errors in measurement and in the application of Generally Accepted Accounting Principles in the September 2007 acquisition of the Thunder River assets.
On the original financial statement, Kodiak Energy reported issuing seven million common stocks of its company in order to acquire assets owned by Thunder River Energy. In their 10-k and 10-Q statements, Kodiak Energy reported a value of $2 per share at the time of the transaction. However, an investigation by the Securities and Exchange Commission (SEC) revealed that Kodiak made an error in measuring the share’s fair value. Instead of $2 per share, the correct value was $2.5 per share. Therefore, Kodiak Energy was forced to file a financial restatement to correct for these errors and misinformation.
Public exposure of these anomalies in the financial statements eroded the corporate credibility of Kodiak Energy. The SEC proved that Kodiak provided false information about the three different transactions. Even the efforts of the company to file a financial restatement could not prevent public dissatisfaction and lose of trust. To make matters worse, further investigation by the SEC showed the company reported 2,251,670 of the shares as flow through shares to save tax (“Kodiak Energy,” 2009). A flow through share is a special type of common share issued in Canada by oil and gas or mineral exploration companies. These shares allow a company to claim federal and sometimes provincial tax deductions or credits (“Flow-through shares,”). It would then appear that a large percentage of the shares were undervalued by as much as a dollar in the financial report. As a result, the $1,125,835 in flow...