-  Financial statements of a company [Solved problem with 14 Adjustments] Company final accounts
- IAS 8 Correction of Prior Period Accounting Error
- Prior Period Accounting Errors
- Correction of Prior Period Accounting Errors
- Errors discovered after reporting date
- Impracticability in Correction of Prior Period Errors
 Financial statements of a company [Solved problem with 14 Adjustments] Company final accounts
IAS 8 Correction of Prior Period Accounting Error
Prior Period Accounting Errors
- Prior Period Errors are omissions from, and misstatements in, prior period financial statements resulting from the failure to use, or the misuse of, reliable information that was available, or could be reasonably expected to have been obtained, at the time of preparation of those financial statements.
(Adapted from IAS 8)
Examples of accounting errors included the following:
- Misapplication of accounting policies: e.g.
not recognizing sale upon transfer of goods to a customer
- Fraud: e.g. overstating sales revenue by issuing fake invoices before the reporting date
- Misunderstanding of, or failure to notice, information at the time of preparation of financial statements:
e.g. not writing off a receivable who had been announced as insolvent before the authorization of financial statements
- Arithmetical Errors
- Omission of transactions and events from the financial statements
Errors must be distinguished from changes made to prior period estimates that had been based on information that best reflected the conditions and circumstances that existed at the reporting date.
Errors in financial statements reduce the reliability of information presented.
Errors must therefore be discovered and corrected on a timely basis to ensure that users can rely on the information contained in the financial statements.
Correction of Prior Period Accounting Errors
Prior Period Errors must be corrected Retrospectively in the financial statements. Retrospective application means that the correction affects only prior period comparative figures.
Current period amounts are unaffected.
Therefore, comparative amounts of each prior period presented which contain errors are restated. If however, an error relates to a reporting period that is before the earliest prior period presented, then the opening balances of assets, liabilities and equity of the earliest prior period presented must be restated.
Errors discovered after reporting date
Accounting Errors discovered after the reporting date but before the authorization of financial statements are adjusting events after the reporting date as per IAS 10 and must therefore be corrected in the current period prior to the issuance of financial statements.
Impracticability in Correction of Prior Period Errors
The retrospective correction of accounting errors may be impracticable.
This may be the case for example where entity has not collected sufficient data to enable it to determine the effect of correction of an accounting error and it would be unfeasible or impractical to reconstruct such data.
Where impracticability impairs an entity's ability to correct an accounting error retrospectively from the earliest prior period presented, the correction must be applied prospectively from the beginning of the earliest period feasible (which may be the current period).
- The nature of prior period errors corrected during the period
- The amount of restatement made at the start of the earliest prior period presented
- The circumstances that resulted in impracticability to correct an accounting error retrospectively and how and from when the error has been corrected
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IAS 8: Changes in Accounting Policies, Estimates and Errors