Case Study on Restatement of Financial Statements on Account of Prior Period Errors

Para 5 of Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, defines prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

(a) was available when financial statements for those periods were approved for issue; and

(b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

This story discusses a case study where a company capitalized the borrowing cost after the cessation of a substantial period of time to get the machinery ready for its intended use, was considered a misstatement in the financial statements as this information was available at the time of approval of those financial statements. Therefore, it was treated as a prior period error on account of the application of incorrect accounting policy and contravention of the requirement of Ind AS 23. To know how to restate financial statements and whether a third balance sheet is required.

Click Here To Read The Full Story