Error Corrections

Question 0

Errors which are discovered in the same year that they are made are corrected by:

(1) Determining the entry that was made
(2) Determining the correct entry
(3) Analyzing increases or decreases in affected accounts
(4) Making the correct entry

Answer 0

Error correction

Question 1

Accountants must be in a position to anticipate, locate, and correct errors in their functions of systems and procedures design, controllership and attestation

Answer 1

Error correction

Question 2

Errors in classification (e.g. sales expense instead of R&D expense) only affect one period

Answer 2

Error correction

Question 3

Non systematic errors in adjusting entries (e.g. an error in ending inventory of one period) affect 2 periods and are known as self-correcting (counterbalancing) errors.

Answer 3

Error correction

Question 4

Other errors will affect the income of several periods, such as misrecording the cost of a long-lived asset (i.e. depreciation will be misstated for all periods)

Answer 4

Error correction

Question 5

When an error is discovered in a period subsequent to the period when the error occurred, an entry must be made to correct the accounts as if the error had not been made.

Answer 5

Error correction

Question 6

Accounting errors are errors in recognition, measurement, presentation, or disclosure in the financial statements. An error can occur from mathematical statements, mistakes in applying GAAP, or oversights that existed when the financial statements were prepared. A change in accounting principle from non-GAAP to GAAP is also a correction of an error.

Answer 6

Error correction

Question 7

An error in the financial statements is treated as a prior period adjustment by restating the prior period financial statements. The cumulative effect of the error is reflected in the carrying value of assets and liabilities at the beginning of the first period presented, with an offsetting to the opening balance in retained earnings for that period. Financial statements for each period are then adjusted to reflect the correction of the period-specific effects of the error

Answer 7

Error correction

Question 8

Footnote disclosures should disclose that the previously issued financial statements were related, along with a description of the error. The line item effects of the error and any per share amounts must also be disclosed for each period presented. The gross effects and net effects from applicable income taxes on the net income of the prior period must be disclosed, as well as the effects on retained earnings and net income. Footnote disclosures must also indicate the cumulative effect of the change on retained earnings or other components of equity or net assets at the beginning of the earliest period presented. Once the correction of the error is disclosed, the financial statements of subsequent years do not need to repeat the disclosures.

Answer 8

Error corrections

Question 9

Inventory errors have an impact on both the balance sheet and the income statement.

Answer 9

Error correction

Question 10

Inventory errors include a misstatement of the ending inventory balance, which is followed by a misstatement of the beginning balance for the next period, or an inventory error could be a misstatement of purchases for the period.

Answer 10

Error correction

Question 11

The analysis of inventory errors in a periodic inventory system is facilitated by setting up a statement of cost of goods sold. The statement of cost of goods sold shows the relationship between the inventory and purchases accounts and the impact of incorrect amounts.

Answer 11

Error corrections

Question 12

ASC Topic 250, found in the Presentation area of the Codification, outlines the accounting rules for accounting changes and error corrections.

Answer 12

Research Component - Accounting Standards Codification

Question 13

Accounting for error correction is similar to US GAAP. A prior period error includes arithmetic mistakes, mistakes in recognition, measurement, presentation, or disclosures in the financial statements. IFRS requires the entity to correct the by restating the comparative amounts for prior periods. If the error occurred before the earliest, then the opening balances of assets, liabilities, and equity should be restated for the earliest period presented. Similar to US GAAP, if it is impracticable to determine the periodic effects of the error, comparative information is restated from the earliest date practicable.

Answer 13

International Financial Reporting Standards