Restatement of Financial Statements and their Disclosure as per Ind AS 8

Where the financial statements of an enterprise contain either material errors or immaterial errors made intentionally or unintentionally to achieve a particular presentation of an entity’s financial position, financial performance, or cash flows, then the said financial statements are considered to be in non-compliance with Ind ASs. It may happen that the potential current period errors discovered in a particular period are corrected before the financial statements are approved for issue. But in some cases, material errors are left undiscovered until a subsequent period. Such prior period errors, when discovered, are corrected in the year of discovery, by adhering to the principles as prescribed in Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, as below:

Para 42 states that an entity shall correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery by:

 (a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or

 (b) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities, and equity for the earliest prior period presented.

For Example, While preparing the financial statements for the year 2021-22 (current year), if any material error is discovered for the year 2018-19 (the year before the earliest prior period), then the financial statements of the entity is corrected by restating the opening balances of relevant assets and liabilities & relevant component of equity for the year 2020-21( earliest prior period). This will result in a consequential restatement of opening balances for the year 2021-22.

However where it is impracticable to determine either the period-specific effects, the cumulative effect of the error, or the amount of an error, then an entity shall :

 (a) In case of the period-specific effects of an error is impracticable to determine, the entity shall restate the opening balances of assets, liabilities, and equity for the earliest period for which retrospective restatement is practicable (which may be the current period).

 (b) In case the cumulative effect of an error is impracticable to determine, at the beginning of the current period, of an error in all prior periods, the entity shall restate the comparative information to correct the error prospectively from the earliest date practicable.

 (c) In case the amount of an error for all prior periods is impracticable to determine, the entity shall restate the comparative information prospectively from the earliest date practicable

Ind AS 8 further states that the correction of a prior period error is excluded from profit or loss for the period in which the error is discovered. Any information presented about prior periods, including any historical summaries of financial data, shall be restated as far back as is practicable.

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