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    CHAPTER 16 - Ia

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    Valentina Tan Du
    This document discusses error correction in financial statements. It defines prior period errors as omissions or misstatements that were available when the financial statements for that period were issued but were not properly included. Prior period errors are corrected retrospectively by restating the comparative financial statements. Errors can affect the income statement, statement of financial position, or both. Counterbalancing errors offset themselves over two periods while non-counterbalancing errors do not and require correction in the statements of all affected periods.

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    CHAPTER 16 - Ia

    Uploaded by

    Valentina Tan Du
    378 views2 pages
    This document discusses error correction in financial statements. It defines prior period errors as omissions or misstatements that were available when the financial statements for that period were issued but were not properly included. Prior period errors are corrected retrospectively by restating the comparative financial statements. Errors can affect the income statement, statement of financial position, or both. Counterbalancing errors offset themselves over two periods while non-counterbalancing errors do not and require correction in the statements of all affected periods.

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    CHAPTER 16 - ia

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    This document discusses error correction in financial statements. It defines prior period errors as omissions or misstatements that were available when the financial statements for that period were issued but were not properly included. Prior period errors are corrected retrospectively by restating the comparative financial statements. Errors can affect the income statement, statement of financial position, or both. Counterbalancing errors offset themselves over two periods while non-counterbalancing errors do not and require correction in the statements of all affected periods.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    378 views2 pages

    CHAPTER 16 - Ia

    Uploaded by

    Valentina Tan Du
    This document discusses error correction in financial statements. It defines prior period errors as omissions or misstatements that were available when the financial statements for that period were issued but were not properly included. Prior period errors are corrected retrospectively by restating the comparative financial statements. Errors can affect the income statement, statement of financial position, or both. Counterbalancing errors offset themselves over two periods while non-counterbalancing errors do not and require correction in the statements of all affected periods.

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    CHAPTER 16: ERROR CORRECTION

     Introduction
    o Can arise in respect of recognition, measurement, presentation or disclosure of
    elements of financial statements
    o Potential current period errors discovered are corrected before the financial statements
    are authorized for issue
    o Material errors are sometimes not discovered until a subsequent period
     These prior period errors are corrected in the comparative information
    presented in the FS for that subsequent period
     Prior period errors
    o Omissions and misstatements in the entity’s financial statements for one or more
    periods arising from a failure to use or misuse of reliable information that:
     Was available when FS for these periods were authorized for issue
     Could reasonably be expected to have been obtained and taken into account in
    the preparation and presentation of those FS
    o Include the effects of mathematical mistakes, mistakes in applying accounting policies,
    oversights or misinterpretation of facts and fraud
     Treatment of prior period errors
    o Shall correct material prior period errors retrospectively in the 1 st set of financial
    statements authorized for issue after their discovery
    o Shall be corrected by retrospective restatement
     If comparative statements are presented, the prior year statements are restated
    to correct the error
     Adjustment of the beginning balance of retained earnings of the earliest period
    presented
     Statement of Financial Position errors
    o Affect the statement of financial position or real accounts only, meaning the improper
    classification of an asset, liability and capital account
    o Entry is made to reclassify the account balances
     Income statement errors
    o Affect the income statement or nominal accounts only (improper classification of
    revenue and expense accounts)
    o Have no effect on the statement of financial position and on net income
    o Reclassifying entry
     Necessary only if the error is discovered in the same year it is committed
     If error is discovered in a subsequent year, no reclassifying entry is necessary
    because the nominal accounts for the current year are correctly stated
     Combined statement of financial position and income statement errors
    o Affect both statement of financial position and income statement because they result in
    a misstatement of net income
    o Ex. If accrued salaries payable is overlooked, the effects are:
     Salaries expense understated (income statement error)
     Liability understated (statement of financial position error)
     Net income overstated (income statement error)
     Retained earnings overstated (statement of financial position error)
    o Classified as counterbalancing and noncounterbalancing errors
     Counterbalancing errors
    o Errors which if not detected are automatically counterbalanced or corrected in the next
    accounting period
    o These errors will be offset or corrected over 2 periods or these errors correct
    themselves over 2 periods
     Effects of counterbalancing errors
    o Income statements for 2 successive periods are incorrect.
    o The statement of financial position at the end of first period is incorrect.
    o The statement of financial position at the end of the second period is correct.
    - Normally include the misstatement of the ff.:
    o Inventory, including purchases and sales
    o Prepaid expense
    o Accrued expense
    o Deferred income
    o Accrued income
     Noncounterbalancing errors
    o Errors which, if not detected, are not automatically counterbalanced or corrected in the
    next accounting period
     Effects of non-counterbalancing errors
    o Income statement of the period in which the error is committed is incorrect but the
    succeeding income statement is not affected.
    o Statement of financial position of the year of error and succeeding statement of
    financial position are incorrect until the error is corrected.
    o Ex. Misstatement of depreciation

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