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Retrospective application: opening equity and comparatives

Learning objectives

  • Calculate the adjustment to opening equity of the earliest prior period presented and the restated comparative amounts.L2, L3
  • Record the retrospective adjustment for a change in accounting policy, including the tax effect.L2, L3
  • Prepare the restatement table (as previously reported, adjustment, restated) by line item and by period.L3, L4
  • Identify an error in carrying out the restatement (adjustment recognised in profit or loss of the period, comparatives not restated).L2, L3

Normative references

  • IAS 8 §4The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changes in accounting policies are accounted for and disclosed in accordance with IAS 12.
  • IAS 8 §5Definitions: accounting policies — the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements; accounting estimates — monetary amounts in financial statements that are subject to measurement uncertainty; 'material' — used as defined in IAS 1 (para. 7); prior period errors — omissions from, and misstatements in, the financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available when those financial statements were authorised for issue and could reasonably be expected to have been obtained and taken into account (mathematical mistakes, mistakes in applying accounting policies, oversights, misinterpretations of facts, fraud); retrospective application — applying a new accounting policy as if that policy had always been applied; retrospective restatement — correcting the recognition, measurement and disclosure of amounts as if the error had never occurred; prospective application — applying a new policy to transactions occurring after the date of the change, and recognising the effect of a change in estimate in the current and future periods affected; impracticable — a requirement the entity cannot apply after making every reasonable effort to do so, which, for a prior period, covers three situations: effects not determinable; assumptions required about what management's intent would have been at the time; significant estimates for which it is impossible to distinguish objectively information that provides evidence of circumstances that existed at that date and that would have been available when the financial statements were authorised for issue.
  • IAS 8 §22Subject to para. 23, retrospective application means adjusting the opening balance of each affected component of equity for the earliest prior period presented, and the other comparative amounts for each prior period presented, as if the new accounting policy had always been applied.
  • IAS 8Under retrospective application, the new accounting policy is applied to comparative information for prior periods as far back as is practicable; the adjustment relating to periods before those presented is made to the opening balance of each affected component of equity of the earliest prior period presented, usually retained earnings.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

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