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 GAAP, or the oversight of facts existing when the financial statements were prepared. It is not an accounting change.
You should restate prior period financial statements when there is an error correction. Restatement requires that you:
- 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.
If you correct an item of profit or loss in any interim period other than the first interim period of a fiscal year, and some portion of the adjustment relates to prior interim periods, then do the following:
- Include that portion of the correction related to the current interim period in that period; and
- Restate prior interim periods to include that portion of the correction applicable to them; and
- Record any portion of the correct related to prior fiscal years in the first interim period of the current fiscal year.