An error in previously issued financial statements

Adjustment of an error in previously issued financial statements is not an accounting change. Such errors include mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time financial statements were prepared.

– IN SHORT – Adjustments of accounting errors. An error in previously issued financial statements

  1. If detected in period error occurred correct accounts through normal accounting cycle adjustments.
  2. If detected in a subsequent period, adjust for effect of material errors by making prior-period adjustments directly to retained earnings balance for the years affected by those errors. lf the error relates to a year that is not presented in the financial statements, the retained earnings balance for the earliest year presented is adjusted. Also correct each item presented in comparative financial statements.
  3. Once an error is discovered in previously issued financial statements, the nature of the error, its effect on the financial statements, and its effect on the current period’s income and EPS should be disclosed.

Adjustments of accounting errors

A financial statement error can impact the interpretation of the financial statements in the year of the error and in all subsequent years when the error year is used for comparison. For financial reporting purposes, when an error is detected, all financial statements presented for comparative purposes are adjusted and restated. For bookkeeping purposes, most errors that go undetected counterbalance over a 2-year period; those errors that impact income and that have not counterbalanced are adjusted by making a direct adjustment to retained earnings.

Error adjustments are not considered accounting changes, but their treatment is specified in IAS 8. IAS 8 41 – 53 covers the adjustment of errors made in a previous year. They are treated for accounting purposes as prior-period adjustments. They should be charged or credited net of tax to retained earnings and reported as an adjustment in the statement of shareholders’ equity in the opening balance of the comparative period included in the financial statements. It is not included in net income for the current period.

If the company uses longer periods of comparative periods errors have to be adjusted back to the first period used in the comparatives (i.e. 5 year comparatives, the error is adjusted back to the oldest year in the opening balances of that oldest year – if and when the error was also recorded in those comparative periods).

Prior-period adjustments adjust the beginning balance of retained earnings for the net of tax effect of the error as follows:

Reporting period




Retained earnings—1/1

Add: net income

Less: dividends

Retained earnings—12/31

An error in previously issued financial statements

An error in previously issued financial statements





Retained earnings—1/1 unadjusted1

Prior-period adjustments (net of tax)

Retained earnings—1/1 adjusted

Add: net income

Less: dividends

Retained earnings—12/31







Errors may arise because of mathematical mistakes, erroneous application of IFRS, or misuse of information existing at the time the financial statements were prepared. Additionally, changing a principle that is not IFRS to one that is IFRS represents an error adjustment.

In ascertaining whether an error is material and therefore reportable, consideration should be given to the significance of each adjustment on an individual basis and to the aggregate effect of all adjustments.

An error must be adjusted immediately when uncovered. An error in previously issued financial statements

If comparative financial statements are presented, there should be a retroactive adjustment for the error as it impacts previous years. The retroactive adjustment is presented via disclosure of the impact of the adjustment on prior years’ earnings opening balance and components of net income.

Footnote disclosure for error adjustments in the year found include the nature and description of the error, financial effect on income before extraordinary items, net income, and related earnings per share amounts.

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Types of errors

Examples of adjustments of errors

An error in previously issued financial statements provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit

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