Overstated liability due to prior years errors

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Lasa1
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Joined: 07 Oct 2020, 11:29

Overstated liability due to prior years errors

Post by Lasa1 »

Liability balance for “received not billed” materials & services is overstated due to duplicated confirmation of receptions of materials and services done in prior years.
Each time there is a confirmation of receipt, the system debits expense or inventory accounts and credits the liability account.
The supplier invoice should extinguish the “received not billed liability” but this never happened because materials were never delivered, and services were never rendered. The receptions in the system were manual errors that now results in an overstated liability.
In order to correct this we need to debit our liability and I am not sure which account I should credit.
For services: Shall I use the original expense account used at the time of the incorrect reception (e.g selling expenses, admin expenses…) or should I use a general one such as “other period expenses” or should I reflect this credit in an income PnL account (i.e “other income”)?
For Inventory: Clearly I won ‘t use the same account than the initial one because this will lead to wrong stocks, so should I use “other manufacturing expenses” or a more general one or “other period expenses” or should I reflect this credit in an income PnL account?
Does IFRS provides any guidance on this?
Thanks!
JRSB
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Re: Overstated liability due to prior years errors

Post by JRSB »

https://ifrscommunity.com/knowledge-bas ... ink-errors

but suggest you simply put the correcting journals as though the mistake was never made when restating. Material?
Lasa1
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Joined: 07 Oct 2020, 11:29

Re: Overstated liability due to prior years errors

Post by Lasa1 »

Thanks!
If no material, that’s clear: I will use the the same financial statement lines through which the error originated
If material, it still unclear to me. Does it mean that I have to correct prior years' financial statements even though they have been audited, financial reports published?
JRSB
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Re: Overstated liability due to prior years errors

Post by JRSB »

Yes, the auditor will need to agree with the restatement though. Your comparative numbers will be corrected and the columns will show 'restated' with a note as to the reason. It's fairly common.
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Marek Muc
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Re: Overstated liability due to prior years errors

Post by Marek Muc »

Reissuing previous financial statements is something that is governed by local law, not IFRS. So you may not need to reissue them.

Under IFRS, if the error is material, you need to adjust the opening balance of equity for the earliest period presented in current year financial statements.
JRSB
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Re: Overstated liability due to prior years errors

Post by JRSB »

absolutely right, apologies if unclear
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