Error corrections which involve restatement of prior period income must be reported

Question

Quizplus · Accepted Answer

When a prior period adjustment is made, it is recorded directly to the opening balance of retained earnings in the period in which the error is discovered. The effect of the error on prior periods' income is removed from the previously reported retained earnings, and the comparative financial statements are restated as if the error had never occurred.
The adjustment is also disclosed in the notes to the financial statements, which will provide details about the nature of the error and the impact of the correction on prior periods. This ensures that users of the financial statements are fully informed about the correction and its effects on the company's financial position and performance.

Error Corrections Which Involve Restatement of Prior Period Income Must