Despite the best efforts of all those responsible for the preparation and approval of financial statements, from time to time Prior Period Errors occur. International Accounting Standard 8 and FRS 102 adopt a similar approach for dealing with those errors.
IAS 8 defines Prior Period Errors:-
Prior Period Errors are omissions from, or misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
- Was available when the financial statements for those periods were authorised for issue; and
- Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.
Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.
The Standard requires that an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:
- Restating the comparative amounts for the prior period(s) presented in which the error occurred; or
- If the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.
In respect of disclosure, an entity should make full disclosure of the nature of the prior period error in the financial statements in which the error is corrected. The disclosure should include the amount of the correction for each financial statement line item affected and if IAS33 applies to the entity, for basic and diluted earnings per share.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.