Correcting Errors in Financial Statements

The Federation of Accounting Professions has released the following guidance on correcting errors in accounting for prior accounting transactions that a company did not recognize in the financial statements, for entrepreneurs, accountants, and auditors issuing a single set of financial statements:

Keywords: Mazars, Thailand, Accounting, TFRS, NAPEs, PAEs, TAS 8, FAP, Single Set of Financial Statements, Errors

7 June 2016

1.   For all prior accounting transactions that a company did not recognize in the prior year’s financial statements, the company must correct material errors retroactively in the first set of financial statements in accordance with TAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors”, for an entity that has adopted the preparation of financial statements under the Thai Financial Reporting Standards for Publicly Accountable Entities(TFRS for PAEs), or in accordance with Chapter 5 of the Thai Financial Reporting Standard for Non-Publicly Accountable Entities (TFRS for NAPEs), for an entity that has adopted the preparation of financial statements in accordance with TFRS for NPAEs. They should do so by taking one of the following steps:

(1)  restating the comparative amounts for the prior period presented in which the error occurred; or

(2)  if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities, and equity for the earliest prior period presented.

(3)  The entity has to disclose the effect of the correction of errors from prior periods in the financial statements in accordance with TFRS for PAEs or TFRS for NPAEs as well.  

Examples of accounting errors and their corrections:

Accounting errors Correction of accounting errors
(a)   Cash on hand over-recorded in the financial statements because of an understatement of loans to the company’s director. The company has to correct the transaction as follows:
  Prior year
 

Debit    Loan to director                      XXX

           Credit     Cash on hand                             XXX

  To adjust the loan to the director because of the overstatement of cash on hand.
   
  Debit     Accrued interest                     XXX
              Credit     Retained earnings                      XXX
  To adjust any accrued interest on the loan to the director.
   
  Current year
  Debit     Accrued interest                     XXX
              Credit     Interest income                         XXX
  To adjust any accrued interest on the loan to the director.
   
(b)   Understatement of “accounts receivable – trade” due to income being under-recorded in the financial statements. The company has to correct the transaction as follows:
  Prior year
  Debit   Accounts receivable – trade      XXX
            Credit     Retained earnings                        XXX
  To adjust sales under-recorded in the prior year
   
  Current year
  Debit    Cash on hand or cash at bank      XXX
             Credit       Accounts receivable – trade       XXX
  To adjust cash received from accounts receivable –  trade

Reference: www.fap.or.th

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