In preparing the financial statements, the accountant may do some types of errors which is called accounting errors. In order to resolve this matter, IAS 8 requires the entity to correct the error by restating its financial statement via retrospective effect.
Examples
- Omission to charge depreciation on fixed assets
- Overstating or understating opening or closing stock or inventory figures
- Including capital expenditure in the income statement believing it as revenue expenditure.
Types of Accounting Errors
- Omission error – It means not recording the transaction altogether,
- Commission error – it means an error in calculation such as adding the figure when it actually needs to be substracted,
- GAAP error – it means an error in following the accounting principle.
Accountant need to make adjustment retrospectively only when the amount is material.
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