CORRECTION OF ERRORS

PAS No. 8
Kinds of Accounting Errors
1. Mathematical errors
2. Omission of certain financial data
3. Failure to use appropriate accounting methods and procedures

Classification of Errors
Intentional or unintentional
Material or immaterial
May be revealed or not by a trial balance
Affects only the balance sheet, income statement or both
Counterbalancing or not counter balancing - counterbalancing errors are errors
which, even if not discovered and corrected immediately is automatically
corrected in the succeeding accounting period, in the regular course of
bookkeeping.
6. Prior Period Errors an error that has significant effect on the financial
statements of one or more prior periods that those financial statements can no
longer be considered to have been reliable at the date of their issue.
Ex: Inclusion in the financial statements of a previous period of material amounts
of receivables in respect of fraudulent contracts which cannot be enforced.
1.
2.
3.
4.
5.

Accounting treatment: Adjust the opening balance of retained earnings.

Comparative information should be restated unless it is impracticable to do so.

The following are not errors

1. Change in accounting principle
2. Change in accounting estimate

Analyzing Effects of Errors

1. Accounts with normal debit balances
a. An overstated debit entry will make its balance overstated.
b. An understated debit entry will make its balance understated.
c. An overstated credit entry will make its balance understated.
d. An understated credit entry will make its balance overstated.
2. Accounts with normal credit balances
a. An overstated debit entry will make its balance understated.

b. An understated debit entry will make its balance overstated.

c. An overstated credit entry will make its balance overstated.
d. An understated credit entry will make its balance understated.

July 2009