An error correction is the correction of an error in previously issued financial statements. This can be an error in the recognition, measurement, presentation, or disclosure in financial statements that are caused by mathematical mistakes, mistakes in applying accounting standards, or the oversight of facts existing when the financial statements were prepared. It is not an accounting change.
The accountant should restate prior period financial statements when there is an error correction. Restatement requires the following actions:
- Reflect the cumulative effect of the error on periods prior to those presented in the carrying amounts of assets and liabilities as of the beginning of the first period presented; and
- Make an offsetting adjustment to the opening balance of retained earnings for that period; and
- Adjust the financial statements for each prior period presented, to reflect the error correction.
If the financial statements are only presented for a single period, then reflect the adjustment in the opening balance of retained earnings.