Correcting a prior period error in the statements
How to correct a material error in last year's statements, restate the comparatives and opening equity, and disclose it while last year's set stays locked.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Halfway through this year's work, the team finds that last year's statements were wrong. A supplier invoice for work done before year end was never accrued. Depreciation on a building was charged on the land as well. A loan was shown as non-current when it was repayable on demand. Last year's set has been issued and signed. What now?
The answer depends on what kind of change it is and whether it is material. This article covers the distinction between errors, estimates and policy changes, how comparatives and opening equity are restated, how restated figures get into Achekam, and what happens to last year's issued set.
Errors, changes in estimates and changes in policy
Three kinds of change are treated differently, and the first job is to classify correctly.
| Kind | What it is | Treatment |
|---|---|---|
| Prior period error | An omission or misstatement in earlier statements from failing to use, or misusing, reliable information that was available | Corrected retrospectively, by restating comparatives |
| Change in accounting estimate | A revision of a judgement as new information arrives, such as a useful life or a bad debt allowance | Applied prospectively, in the current and later periods |
| Change in accounting policy | A different recognition, measurement or presentation basis | Usually applied retrospectively, with its own disclosures |
The tests come from IAS 8 under full IFRS and the corresponding section of IFRS for SMEs. The IFRS Foundation's summary of IAS 8, now titled Basis of Preparation of Financial Statements, explains the criteria for selecting and changing accounting policies and the treatment of changes in estimates and corrections of prior-period errors.
The line between an error and an estimate is where most debate happens. A bad debt allowance that looked reasonable on the information available at the time is not an error just because the debtor later paid. One that ignored a liquidation notice already in the file is. Where the team cannot agree, take it to a consultation: Achekam lets staff take a technical consultation on an engagement from question to conclusion and closure, which leaves a record of how the classification was reached.
Restating comparatives and opening equity
A material prior period error is corrected in the first set of statements approved after its discovery, by:
- restating the comparative amounts for the prior period in which the error occurred; or
- if the error occurred before the earliest period presented, restating the opening balances of assets, liabilities and equity for that earliest period.
In practice, for a two-year set, the comparative column is restated and the opening retained earnings of the comparative year absorb the effect on earlier years. The statement of changes in equity shows the restatement as an adjustment to the opening balance; that statement is covered in getting the statement of changes in equity right.
Mind the knock-on effects. A correction usually touches tax, current and deferred, the cash flow comparatives and any note that discloses the affected balances.
Typing restated comparatives over last year's figures
Achekam offers several sources for comparatives: a person's own figures, last year's issued statements, or a prior-year set a person reviews. Where last year's set came from outside Achekam, staff can upload it as a PDF, and Achekam reads it into figures a person reviews and approves for use as comparatives; AI, where available, fills in details such as the entity name, never numbers.
For a restatement, the person's own figures are the route. Type the restated comparatives over the amounts as originally reported, line by line, from a reconciliation working paper that shows the original figure, the correction and the restated figure. The cash flow statement's current-year column is worked out from the change in balances, so restated opening balances flow into this year's movements. Check afterwards that the cash flow still makes sense, and type a figure for any line where the calculated one is distorted.
If the error is still sitting in the client's ledger, the current-year correction is an adjusting entry. Staff can post a year-end adjusting entry, and a wrong one is reversed with who and why rather than deleted.
Disclosing the nature of the error
The note should tell the reader:
- the nature of the prior period error;
- for each prior period presented, the amount of the correction for each line item affected;
- the amount of the correction at the beginning of the earliest period presented;
- where restatement is impracticable for a particular period, the circumstances and how the error has been corrected.
Label the comparative columns "Restated" and refer to the note. The Studio's notes take their figures from the mapped trial balance, and facts the trial balance cannot hold, such as the story of what went wrong, are left as "[to be completed]" for the preparer to write.
Last year's issued version stays locked
Restating comparatives this year does not change last year's set. Issuing stores the final PDF with a fingerprint and locks that version, so the statements the client signed and filed stay exactly as they were. That is the right outcome: the restatement is disclosed in this year's set, not achieved by rewriting history.
Where the error came from statements another firm prepared, handle it carefully and in writing; first-year statements after another accountant covers the wider handover. Whoever made it, explain the error to the client before they see the restated column, so the first time they read the word "Restated" is not on their approval link.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
