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IFRS Errors in the financial statements and methods of their correction

IFRS Errors in the financial statements and methods of their correction:International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an independent, not-for-profit organisation called the International Accounting Standards Board (IASB).

IFSR Provides global framework for should companies prepare and disclose their financial statements. All the general guidelines for preparation of financial statements are provided in IFRS.

IFRS provides international standards, having an international standard is very much important for the company. A single set of world wide standard will simply accounting procedure for a company to use one reporting language. Investors and auditors will also be provided with cohesive view of finance.

IFRS Errors in the financial statements and methods of their correction

IFRS Errors in the financial statements and methods of their correction

IFRS Errors in the financial statements and methods of their correction: IAS 1 “Presentation of Financial Statements”

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  1. -Purpose and application of the standard.
  2. Components of financial statements, including Report on Equity.
  3. Confidence in reporting and compliance with IFRS.
  4. Presentation of Financial Statements.

IFRS Errors in the financial statements and methods of their correction: IAS 1 also elaborates on the following features of the financial statements:

  • fairly presented and compliant with IFRS.
  • prepared on a going concern basis.
  • prepared using the accrual basis of accounting.
  • has material classes presented separately.
  • does not offset assets and liabilities.
  • prepared at least annually.
  • includes comparison with previous periods.
  • presented consistently across periods.

IFRS Errors in the financial statements and methods of their correction

This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. A complete set of financial statements comprises:

(a) a statement of financial position as at the end of the period.

(b) a statement of profit and loss and other comprehensive income for the period.

(c) a statement of changes in equity for the period.

(d) a statement of cash flows for the period.

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(e) notes, comprising a summary of significant accounting policies and other explanatory information.

(f) a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

IFRS Errors in the financial statements and methods of their correction

BALANCE SHEET ERRORS

These include classification errors among the real accounts in the balance sheet. They have no effect on the income statement and therefore do not require any restatement of retained earnings. When comparative financial statements are prepared the classification errors of prior periods should be corrected for each year presented.

INCOME STATEMENT ERRORS

These include classification errors among the nominal accounts in the income statement. They have not effect on net income and therefore do not require any restatement of retained earnings. When comparative financial statements are prepared the classification errors of prior periods should be corrected for each year presented.

BALANCE SHEET AND INCOME STATEMENT EFFECTS There are two types of errors involving both the income statement and the balance sheet. Counterbalancing errors will be offset over two accounting periods. Non counter balancing errors take more than two periods to offset.

Counterbalancing Errors We first need to determine if the books are closed for the current year.

(1) If the books are closed for the current year:

a) No entry is necessary if the error has already counterbalanced.

b) An entry must be made to retained earnings if the error has not counterbalanced.

(2) If the books are not closed for the current year:

a) If the company is in the second year and the error has already counterbalanced, an entry is necessary to correct the current period and adjusted beginning retained earnings.

b) If the error has not counterbalanced, an entry is necessary to adjusted beginning retained earnings and correct the current period. Restatement of the financial statements is necessary under all conditions.

B. Non counter balancing Errors It makes no difference whether the books are closed or still open, a correcting journal entry is necessary.

IFRS Errors in the financial statements and methods of their correction : IFRS Components Of Financial Statements  are Assets, Liabilities, Owner’s Equity, Revenues, Expenses, Gains, Losses

Assets are :

  1. probable future economic benefits
    –> obtained or controlled by an entity
    –> as a result of past transactions or events.
  2.   Essential characteristics of assets
    Probable future economics benefits
    Obtained or controlled by an entity
    Result of past transactions or events.Common characteristic of all assets
    –> is service potential or future economic benefits

Liabilities are 
–> probable future sacrifices of economic benefits
–> arising from present obligations of an entity
–> to transfer assets or provide services to other entities in the future
–> as a result of past transactions or events.

Essential characteristics of liabilities
Probable future sacrifices of economic benefits
Present obligations to transfer assets or provide services in the future
Result of past transactions or events.

Equity (or net assets) is 
–> residual interests in the assets of an entity
–> that remains after deducting its liabilities.

Essential characteristics of equity
Equity is residual interests in the assets after deducting liabilities
Equity = Assets – Liabilities

Revenues are 
–> inflows of assets of an entity or
–> settlements of its liabilities (or a combination of both)
–> from delivering or producing goods, rendering services.

Essential characteristics of revenues
Inflows of assets or settlements of liabilities
From delivering goods or rendering services

 Expenses are 
–> outflows or other using up of assets or
–> incurrences of liabilities (or a combination of both) |
–> from delivering or producing goods, rendering services.

Essential characteristics of expenses
Outflows of assets or incurrences of liabilities
from delivering goods or rendering services

Gains are 
–> increases in equity (net assets)
–> except those from revenues or investments by owners.

Essential characteristics of gains
Increases in equity from transactions or events
Except those that result from revenues or investments by owners.

Losses are 
–> decreases in equity (net assets)
–> except those from expenses or distributions to owners.
Essential characteristics of losses
Decreases in equity from transactions or events
Except those that result from expenses or distributions to owners.

IFRS Errors in the financial statements and methods of their correction

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IFRS Errors in the financial statements and methods of their correction

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