What is Prior period adjustment?
In short
A prior period adjustment corrects an error in previously issued financial statements by adjusting the beginning balance of retained earnings, net of tax, for the earliest period presented, and restating the prior periods shown.
Key takeaways
- Errors include math mistakes, misapplying principles and misusing facts that existed at the time.
- The correction doesn't pass through current-period income.
- The nature of the error and its effect are disclosed.
Where it's tested
FAR: Accounting Changes & Error Corrections — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A material error in a prior year's financial statements is discovered in the current year. How is it corrected?