Prior Year Adjustment

stefanboro

I have a few debtors balances that were negative, indicating that we have been overpaid, which I knew could not have been the case.

Upon further inspection I've found that quite a few big invoices were not posted in last years accounts. Big ones too so I don't know how the previous accountant missed them.

Now that I have found them can anyone please advise how I:

1. Present them in financial statements? I know a bit about this with IAS's and IFRS's but that is completely useless here. Do I have a seperate "Prior year adjustment" column in PNL? Or do I redo last years accounts altogether?

2. Report the tax effects of prior years adustment? Following on from having a "prior year adustment" column as stated above it would obviously be much easier to simply account for the tax in the current years books. Clearly though, what is easy is not always what is right.

Mucho love for any guidance.

Monsoon

I believe you could use a Statements of Recognised Gains and Losses to report a prior year adjustment.

However, if the sums are material you may want to redo last year and amend the tax return.

I've done it for major balance sheet amendments using the STRGL but for major P&L things I don't think there is an option but to redo it.

I could be wrong. I'm not quite with it tonight. If your luck Steve C wil be along to give you the perfect accounting standard run down

Steve Collings

Hi

If your company is reporting under UK GAAP (not IFRS) then I wouldn't look at IAS 8 in respect of prior period adjustments - FRS 3 (or FRSSE para 2.15) is your port of call. FRSSE describes the accounting treatment of PYAs very well.

It sure sounds like things have got into a mess! If the error or omission is 'fundamental' (material, in other words) then you would normally do a prior year adjustment by restating the previous year's accounts (in this case, sales, debtors and the tax provision). You will then adjust the opening reserves for the cumulative effect. The cumulative effect is also noted at the end of the statement of total recognised gains and losses. When the current year-end financial statements are prepared, the comparative year will show the year-end and underneath will be the phrase "as restated" so users can quite easily identify there has been a PYA.

It might be worth speaking to the accountant who did the previous year's financial statements as they will need to be informed of the adjustment. I, too, am surprised they didn't pick up on the credit balances on the debtors listing. A couple of minor credit balances on the sales ledger is one thing, but this sounds on another level!

Good luck.

Steve

stefanboro

Hi guys,

Many thanks for the guidance and pointers. I have researched the topic further based on what you've put and now have a decent grasp on my approach.

However, I can't convey quite how much I appreciate the help. Thank you.