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ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

Dalton Co discovers in 20X6 that depreciation on a class of machinery in 20X4 and 20X5 was understated because of a formula error in the asset register. The error is material. How should Dalton Co correct it under IAS 8?

A material prior period error must be corrected retrospectively under IAS 8. The entity restates comparative amounts, or the opening balances of the earliest period presented if the error arose earlier. It is not treated as a change in estimate or taken through current profit or OCI.

  1. AAdjust the 20X6 profit or loss as a change in accounting estimate
  2. BRestate the comparative figures retrospectively, and restate opening balances of the earliest period presented if the error pre-dates itCorrect
  3. CRecognise the correction in other comprehensive income for 20X6
  4. DDisclose the error in the notes only and make no adjustment

Explanation

A material prior period error is corrected retrospectively by restating the comparatives, or the opening balances of the earliest period presented if the error occurred before that period. Treating it as an estimate change would push the correction into current profit, which IAS 8 does not allow for errors.

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