What is Restatement (error correction)?
In short
A restatement corrects a material error in previously issued financial statements by revising them, with the cumulative effect on earlier periods adjusted in opening retained earnings (a prior period adjustment).
Key takeaways
- Errors include mathematical mistakes, misapplying accounting principles and oversights, as well as moving from a non-accepted method to an accepted one.
- The correction is shown net of tax, and the nature of the error is disclosed.
- Inventory errors counterbalance after two years, but the statements in between are still wrong.
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?