Determining the significance of an error in the financial statements

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Anyone can make a mistake when preparing financial statements. The main thing is to correct the mistake. And the procedure for correcting it depends on two points: whether the error is significant and in what period it was discovered.

Note A significant error is an error that, individually or together with other errors for the same period, can affect the economic decisions of users made on the basis of the accounting records of this period (Clause 3, 5 - 11, 14 PBU 22/2010).

Significance of an accounting error

An error is considered significant if it, individually or in combination with other errors for the same reporting period, can affect the economic decisions of users that they make on the basis of the financial statements prepared for this reporting period (clause 3 of PBU 22/2010) .
Reporting users are potential investors and counterparties (customers, lessors and creditors) who need to know:

whether to buy securities issued by the organization (will it be able to make a profit from which dividends will be distributed, will it repay its bill); whether to entrust it with the execution of orders, whether to lease property, whether to provide loans (whether the organization will be able to fulfill its contractual obligations).

Thus, significant errors are significant distortions of reporting indicators, due to which the user can make an incorrect conclusion about the organization’s ability to make a profit and fulfill its obligations in a timely manner.

Specific materiality criteria are not established in PBU 22/2010. Therefore, the organization determines the materiality of the error independently, based on both the size and nature of the corresponding article (articles) of the financial statements (clause 3 of PBU 22/2010). It should be taken into account that an indicator can be considered significant if its non-disclosure affects the economic decisions of users made on the basis of financial statements.

Whether an indicator is significant depends on its assessment, nature, and specific circumstances of its occurrence.

Thus, when preparing financial statements, the materiality of the indicator is determined by a combination of qualitative and quantitative factors.

The criterion for the materiality of an error determined by the organization must be reflected in the accounting policy for accounting purposes.

Impact of materiality level on auditor's judgment

The impact of materiality on the auditor's professional judgment requires the auditor to express an appropriate opinion. The auditor expresses an opinion regarding the determination of the level of materiality of misstatements in the financial statements of the audited organization. In particular, the formation of professional judgment in the field of assessing the risk of material misstatements requires objectification of the calculation of the level of materiality at the audit planning stage.

The influence of the level of materiality on the auditor’s conclusions in the audit report is manifested in the existence of an objective dependence on the audit results.

The auditor has the right to make a conclusion about the reliability of the reporting of the audited organization in all material respects if a number of conditions are met:

• misstatements have been identified that are much less than the level of materiality;
• the management of the audited organization agrees to make corrections to the auditor in accordance with his recommendations;
• the management of the audited organization agrees to implement the auditor’s recommendations to prevent identified misstatements in the future;
• qualitative discrepancies and deviations from current regulations and accounting norms, in the opinion of the auditor, are not significant.

The auditor has an obligation to take responsibility for making an objectively informed decision whether to modify the report by expressing a qualified opinion or to formulate a standard unqualified report if the identified misstatements approximate the level of materiality. In any case, the following conditions must be met:

• the management of the audited organization agrees to make corrections to the auditor in accordance with his recommendations and take all measures to prevent them from happening in the future;
• qualitative discrepancies and deviations from current regulations and accounting norms, in the opinion of the auditor, are not significant.

The auditor may modify the report and express a qualified opinion on the reliability of the auditee's reporting if the following conditions are met:

• the identified misstatements significantly exceed the level of materiality;
• qualitative discrepancies and deviations from current regulations and accounting norms, in the opinion of the auditor, are significant;
• the management of the audited organization does not agree to make corrections to the auditor in accordance with his recommendations, and additional recommendations of the auditor are not taken into account.

If it is impossible to clearly express an opinion with a reservation about the reliability of the reporting, the auditor may refuse to express an opinion.

It should be noted that the issue of regulating the procedure for determining the level of materiality in an audit contract, or formalizing this procedure in the form of an additional annex or agreement to the contract, is quite significant. From the point of view of the essential content of the results of determining the level of materiality, this may influence the generated audit report. At the same time, a number of audit firms operate on the basis of the open nature of the methodology for determining the level of materiality, while others adhere to the point of view that it is inadmissible to disclose a proprietary methodology. In favor of the first approach, one should include the provisions of Standard No. 4 “Materiality in an Audit”, as well as the need to indicate to the client of the audit firm that the audit agreement does not contain liability for undetected minor errors. Some auditors are even inclined to express liability in a contract in terms of value. In favor of the second approach, the main argument is the inappropriateness of introducing the client of an audit firm to the procedure for determining the level of materiality due to the fact that such knowledge may allow the financial statements to be deliberately distorted in such a way that the auditor does not identify existing material misstatements and forms a standard conclusion without reservations. Therefore, within the framework of this approach, the auditor is inclined to only express his opinion on the reliability of the statements, and should not disclose specific principles on how such a conclusion was formed.

It should be noted that in this context, a reasonable combination of these approaches in the activities of a particular audit firm seems to be the most objective and appropriate. As part of the combined approach, the audit firm adheres to a specific methodology for determining the level of materiality, and specific methods remain internal information of the company that is not subject to disclosure. This concept often finds expression in the form of development by audit organizations of internal standards for assessing and calculating the level of materiality. Thus, a certain methodology for determining the level of materiality is declared, and establishing the level of materiality is confidential. In accordance with this approach, audit firms can develop special methods for determining the level of materiality for organizations that are their regular clients, for organizations belonging to the same industry, for organizations with a wide range of business transactions that do not allow unambiguous determination of industry specifics.

Thus, the influence of materiality, in addition to its direct influence on the formation of professional judgment and auditor conclusions, can also manifest itself through the effect of internal standards of audit firms.

Accounting statements of Vysoky Confectioner LLC for 2014

Materiality level as a percentage of the reporting line value

As a rule, the materiality level is set as a percentage of the reporting line value. For example, errors that distort the value of any reporting line by 5% or more can be considered significant.

Example 1
An organization mistakenly wrote off as expenses the cost of unsold goods in the amount of 100 rubles. The same mistake was made in tax accounting. According to the accounting policy, errors that distort the value of any reporting line by 5% or more are considered significant. The corresponding calculation is presented in the table.

Determining the level of significance of an error
Reporting line name	Value of the line before the error was detected, rub.	Line value after error correction, rub.	Distortion of the reporting line value as a percentage
1210 "Stocks"	50 000	50 100	0.2 (50,100 rub. - 50,000 rub.) / 50,100 rub.) x 100%)
2120 “Cost of sales”	20 000	19 900	0.5 (RUB 20,000 – RUB 19,900) / RUB 19,900) x 100%)
2200 “Profit (loss) from sales”	5 000	5 100	1.96 (5,100 rub. - 5,000 rub.) / 5,100 rub.) x 100%)
2300 “Profit (loss) before tax”	1 000	1 100	9.09 (RUB 1,100 - RUB 1,000) / RUB 1,100) x 100%)
2410 “Current income tax”	200	220	9.09 (220 rub. - 200 rub.) / 220 rub.) x 100%)
2400 “Net profit (loss)”	800	880	9.09 (880 rub. - 800 rub.) / 880 rub.) x 100%)

The percentage of distortion of the value of lines 2300, 2410 and 2400 of the income statement was 9.09%, i.e. more than 5%. The error is significant.

Standardized calculation of materiality level

A single indicator of the level of materiality is determined by a standardized method, which is used by most audit firms and is based on calculating materiality depending on the permissible error for basic indicators. The calculation method using the example of reporting for 2014 is shown in Table 1.

Table 1 – Standardized calculation of the level of materiality

It should be noted that in the internal standards of the audit firm, the values ​​of the permissible error must be determined for all basic indicators used and applied when conducting audits on an ongoing basis.

The calculated value is obtained based on the product of the base indicator value and the error value. The arithmetic mean of the calculated value in this case will be 689,787 rubles.

The largest and smallest deviation is determined by the formulas:

(Highest value - Average value) / Average value * 100%

(Average - Lowest value) / Average * 100%

If the deviations of the largest and smallest values ​​are significant, these values ​​should be discarded and the average value recalculated.

(1550900 – 689787) / 689787 *100% = 125%

(689787 – 110875) / 689787 *100% = 84%

When using this method, the level of materiality will be 600,000 rubles if the largest and smallest values ​​are discarded.

Thus, with a standardized approach, the value is 600,000 rubles. will be the planned level of materiality.

Calculation of materiality can be carried out based on the selection of basic indicators using several methods.

Level of materiality based on the average value of reporting indicators

The level of materiality can also be calculated in a fixed amount, for example, based on the average value of reporting indicators. In this case, the materiality level is recalculated annually.

Example 2
In accordance with the accounting policy, the level of materiality of the error is calculated as 5% of the average value of five reporting indicators for the reporting year in which the error was made. The values ​​of these indicators for 2021 were:

1. Balance:

on line 1150 “Fixed assets” - 5 million rubles; on line 1230 “Accounts receivable” - 3 million rubles; on line 1370 “Retained earnings (uncovered loss)” - 2 million rubles;

2. Financial results report:

on line 2110 “Revenue” - 24 million rubles; on line 2400 “Net profit (loss)” - 1 million rubles.

Total: 35 million rubles. (5 million rubles + 3 million rubles + 2 million rubles + 24 million rubles + 1 million rubles).

The level of materiality for an error made in the reporting for 2015 is 350 thousand rubles. (RUB 35 million / 5×5%).

Errors within 350 thousand rubles. are considered insignificant, and those exceeding 350 thousand rubles are considered significant.

Calculation of the level of materiality

In order to quantify the level of materiality in an audit, you can use absolute or relative indicators.
Absolute indicators are rarely used in practice, because for different audited entities with different scales of activity, the same amount of deviation can be either significant or insignificant. However, many experts believe that it is necessary to establish the amount from which an error will be considered significant for any entity, regardless of the size of its business. In order to understand how to determine the level of materiality using relative indicators, you must first select a basis for calculation. One or several indicators can be selected as a base. If one criterion is applied, then, as a rule, the balance sheet currency is used. Let's consider how in this case the level of materiality in an audit is calculated.

Example 1

The balance sheet currency of the enterprise at the end of the audited period was equal to 100,000 thousand rubles.

The auditor decided to use one indicator and a coefficient of 0.02.

The level of materiality will be:

C = 100,000 x 0.02 = 2,000 thousand rubles.

To more accurately determine the level of materiality, it is better to use not one criterion, but a combination of them. For sampling, indicators from the following list are usually used:

- balance currency

- equity

- revenues from sales

– total costs of the enterprise

– balance sheet profit

Let's consider how, with this calculation option, the level of materiality in an audit is determined

Example 2

From the resulting list, extrema are usually excluded (in this case, 500) and the average value among the remaining indicators is calculated.

C1 = (2,000 + 1,500 + 1,400 + 1,200) / 4 = 6,100 / 4 = 1,525 thousand rubles.

The resulting value is usually rounded, but so that the deviation from the original amount does not exceed 20%.

In this case, you can subtract 25 thousand rubles to get 1,500 thousand rubles.

Because 25 / 1525 = 2% < 20%, then in the end we get the value:

C = 1,500 thousand rubles.

Auditing standards define only the most general rules for conducting audits. Therefore, the auditor himself chooses a specific methodology by which the level of materiality is determined. How to calculate the basic indicators, which coefficients to use and the averaging technique - the specialist decides independently, based on his professional experience and the characteristics of the company being audited.

The particular level of materiality in an audit is determined by distributing the general level, calculated in one of the above methods, among individual accounting accounts. This distribution is usually made in proportion to the share of the balances on the relevant accounts in the balance sheet currency.

Major bug fixes

The procedure for correcting a significant error depends on the period when it was identified - before the approval of the statements by the organization’s participants or after (section II of PBU 22/2010).
Correction of an error is documented in an accounting certificate, in which you must indicate:

when and what kind of mistake was made; which reporting lines were affected by the error, in what amount and why it was considered significant; when an error is detected; what accounting records corrected the error; which reporting lines have been adjusted, including retrospectively.

Errors made in the reporting year and identified before the reporting was signed by the head of the organization

In accounting, any errors (both significant and immaterial) made in the reporting year and identified before the signing of the statements by the head of the organization are corrected as follows:
if the error was discovered before December 31 of the reporting year - by entries on the date the error was identified, i.e. the month of the reporting year in which the error was identified (clause 5 of PBU 22/2010); if it is identified on December 31 of the reporting year or later - records as of December 31 of the reporting year (clause 6 of PBU 22/2010).

Consequently, all errors of the current reporting period identified before the date of signing by the head of the organization of the annual financial statements for this year are taken into account when drawing up the current statements of this year.

There are several ways to correct accounting data.

Corrections can be made by reverse entries, the “red reversal” method, or by additionally accruing any amounts that were not previously taken into account.

To correct the error:

1. draw up an accounting statement in which you indicate when and what error was made, when it was identified, and with what entries it was corrected;
2. reverse incorrect entries;
3. make correct notes.

Example 3
In December 2021, the following significant error was identified: for the period from January to November 2021, depreciation in the amount of RUB 100,000 was not accrued on fixed assets.

In this case, in December 2021 - the month the error was discovered - additional depreciation amounts are charged, which is reflected in the accounting records by entries in the credit of account 02 “Depreciation of fixed assets” in correspondence with the production cost accounts (clause 5 of PBU 22/2010, Instructions for using the Chart of Accounts).

Example 4
An organization in March 2021 assessed property tax for the first quarter of 2021 in the incorrect amount - 60,000 rubles. instead of 40,000 rubles. This error was identified in February 2021 before the 2016 reporting was signed.

To correct the error, the following entries were made as of 12/31/16:

REVERSE Debit 26 - Credit 68 - 60,000 rub. - the entire amount of incorrectly accrued property tax for the first quarter of 2016 was reversed. Debit 26 - Credit 68 - 40,000 rubles. — property tax accrued for the first quarter of 2021.

Errors identified at the end of the reporting year after signing the reports

If an error is identified after the reporting is signed, the procedure for correcting this error depends on the date it was identified.
The error of the previous reporting year was detected after the date of signing the financial statements for this year, but before the date of presentation of the statements to its users

According to paragraph 7 of PBU 22/2010, a significant error of the previous reporting year, identified after the date of signing the financial statements for this year, but before the date of submission of such statements to the shareholders of the joint-stock company, participants of the limited liability company, government body, local government body or other body , authorized to exercise the rights of the owner, etc., is corrected by entries in the relevant accounting accounts for December of the reporting year (the year for which the annual financial statements are prepared).

If the specified financial statements were presented to any other users, then they must be replaced with statements in which the identified significant error has been corrected (revised financial statements).

The fact that a corrected copy is presented to users can be reflected on the title page, for which the “Adjustment number” column is provided. For example, if the statements are corrected for the first time, then “1” is indicated in this column.

Example 5
Bonuses for production shop workers in 2021 were accrued in the correct amount, but an incorrect entry was made - Debit 26 “General expenses”, Credit 70 “Settlements with personnel for wages”, although it should have been written: Debit 20 “Basic production", Credit 70. As a result, the amount of bonuses is incorrectly reflected in the income statement for 2021 (instead of line 2120 “Cost of sales” is indicated on line 2220 “Administrative expenses”).

The error was identified in March 2021 after the reporting was submitted to the organization's participants for approval. To correct the error, the following entries were made as of 12/31/16:

REVERSAL Debit 26 - Credit 70 - the incorrect entry for the accrual of premiums was reversed; Debit 20 - Credit 70 - the correct entry for the accrual of bonuses was made.

In the amended version of the financial results statement, signed by the head and presented to the organization’s participants, the amount of bonuses is reflected in line 2120 “Cost of sales”.

An error in the previous reporting year was identified after the reporting was submitted to its users, but before the date of its approval by the owners.
In accordance with clause 8 of PBU 22/2010, a significant error in the previous reporting year was identified after the presentation of the financial statements for this year to shareholders of a joint-stock company, participants of a limited liability company , government body, local government body or other body authorized to exercise the rights of the owner, etc., but before the date of approval of such reporting in the manner established by the legislation of the Russian Federation (for example, at a general meeting of shareholders), it is also corrected by entries in the relevant accounts accounting for December of the reporting year (the year for which the annual financial statements are prepared). At the same time, the revised financial statements disclose information that these financial statements replace the originally presented financial statements, as well as the basis for preparing the revised financial statements.

The revised financial statements are sent to all addresses to which the original financial statements were submitted.

Error of the previous reporting year, identified after approval of the financial statements for this year

Based on clause 9 of PBU 22/2010, a significant error of the previous reporting year, identified after approval of the financial statements for this year, is corrected:

1) entries in the relevant accounting accounts in the current reporting period, with the corresponding account in the entries being account 84 “Retained earnings (uncovered loss);

2) by recalculating the comparative indicators of the financial statements for the reporting periods reflected in the financial statements of the organization for the current reporting year, except in cases where it is impossible to establish the connection of this error with a specific period or it is impossible to determine the impact of this error on a cumulative basis in relation to all previous reporting periods.

Restatement of comparative financial statements is carried out by correcting the financial statements as if the error of the previous reporting period had never been made (retrospective restatement).

Retrospective restatement is carried out in relation to comparative indicators starting from the previous reporting period presented in the financial statements for the current reporting year in which the corresponding error was made.

According to paragraph 10 of PBU 22/2010, in the event of correction of a significant error of the previous reporting year, identified after the approval of the financial statements, the approved financial statements for previous reporting periods are not subject to revision, replacement and re-presentation to users of the financial statements.

As established in paragraph 11 of PBU 22/2010, if a significant error was made before the beginning of the earliest of the previous reporting periods presented in the financial statements for the current reporting year, the opening balances for the corresponding items of assets, liabilities and capital at the beginning of the earliest of reporting periods presented (usually three years).

If it is impossible to determine the impact of a significant error on one or more previous reporting periods presented in the financial statements, the organization must adjust the opening balance for the relevant items of assets, liabilities and capital at the beginning of the earliest period for which recalculation is possible (clause 12 of PBU 22 /2010).

Please note that it is impossible to determine the impact of a significant error on the previous reporting period if complex and (or) numerous calculations are required, during which it is impossible to identify information indicating the circumstances that existed on the date of the error, or it is necessary to use information obtained after the date of approval of the accounting reporting for such a previous reporting period (clause 13 of PBU 22/2010).

Three levels of materiality of misstatement

When forming the auditor's conclusions in the auditor's report, they are influenced by 3 levels of materiality.

• Minor misstatements - such errors are recognized by the auditor as inaccuracies or frivolous errors that will not affect decisions that can be made based on the results of the analysis of the statements being audited;
• Material misstatements - such errors are quite significant, but do not affect the assessment of the statements as a whole, and although the presence of such distortions will affect decisions that can be made based on the results of the analysis of the audited statements, the state of the audited organization is reflected in the report as a whole objectively;
• Significant distortions - the presence of such errors does not allow us to judge the objectivity and reliability of the financial statements as a whole.

Thus, in case of immaterial misstatements, the auditor forms a standard opinion without reservations. In case of significant misstatements, the auditor is obliged to assess their possible impact on other reporting indicators, and if it is not significant for the reporting as a whole, the auditor forms a conditionally positive conclusion, i.e. conclusion with reservations. An example of such distortions may be an error in the reflection of data in the balance sheet for any item, while the share of this item in the balance sheet currency is insignificant, while all other balance sheet items correctly reflect the information and are formed correctly. In the case of significant misstatements, the auditor must assess their impact as critical, since their presence will lead to making incorrect decisions based on the results of the analysis of the audited statements. Accordingly, the auditor is required to either disclaim an opinion or form an adverse audit opinion. Such distortions are taken into account by the auditor if, for example, data is incorrectly reflected in the balance sheet for any balance sheet item that has a significant share in the balance sheet currency.

It should be noted that the auditor should base the choice between a conditionally positive and negative audit report on the results of checking the impact of the detected misstatements. In this regard, detected material misstatements are assessed based on their possible impact on the financial statements as a whole. The auditor extends the identified errors to the reporting. As a result, the auditor can come to one of two conclusions:

1. The identified material misstatements affect only one line item in the financial statements;
2. Identified material misstatements affect several reporting items, affecting several interrelated bodies of information.

Consequently, if the auditor comes to a conclusion of the second type, then the likelihood of forming a negative conclusion will prevail, since the extent of the identified material misstatements appears to be higher and more significant.

Simplified error correction procedure

Organizations that have the right to use simplified methods of accounting, including simplified accounting (financial) reporting (for example, small businesses), can correct a significant error of the previous reporting year, identified after the approval of the financial statements for this year, in the manner established by clause 14 PBU 22/2010 for minor errors, without retrospective recalculation, namely by entries in the relevant accounting accounts in the month of the reporting year in which the error was identified. Profit or loss arising as a result of correcting this error is reflected as part of other income or expenses of the current reporting period in account 91 “Other income and expenses”.

Example 6
In January 2021, after reforming the balance sheet, signing and presenting the financial statements to users, an error was discovered that was made in September 2021. The financial statements have not yet been approved by the owners of the organization. As a result of the error, the amount of office rental expenses was underestimated. The price of a mistake is 500,000 rubles. In addition, VAT on rent in the amount of RUB 90,000 was not reflected.

This error is considered significant.

Corrective entries were made in the accounting records as of December 31, 2021:

Debit 26 “General business expenses”, Credit 60 “Settlements with suppliers and contractors” - 500,000 rubles. — the amount of rent for September 2021 has been additionally accrued; Debit 19 “Value added tax on acquired assets”, Credit 60 - 90,000 rubles. — reflected “input” VAT on rent for September 2021; Debit 68 “Calculations with the budget for taxes and fees”, subaccount “Calculations for VAT”, Credit 19 - 90,000 rubles. — accepted for deduction from the budget of VAT on rent for September 2021; Debit 90 “Sales”, subaccount “Cost of sales”, Credit 26 - 500,000 rubles. — the amount of previously unaccounted rent for September 2021 was written off; Debit 90, subaccount “Profit/loss from sales”, Credit 90, subaccount “Cost of sales” - 500,000 rubles. — the subaccount “Cost of sales” of account 90 is closed; Debit 99 “Profit and Loss”, Credit 90, subaccount “Profit/Loss from Sales” - 500,000 rubles. — the “Profit/Loss from Sales” subaccount is closed; Debit 84 “Retained earnings (uncovered loss)”, Credit 99 - 500,000 rubles. — the amount of net profit has been adjusted.

In the Financial Results Report for 2021, the value on line 2120 “Cost of sales” must be increased by 500,000 rubles. and change other indicators of this report, for example, in lines 2100 “Gross profit (loss)”, 2220 “Profit (loss) from sales”, etc.

Example 7
Let's use the conditions of the previous example. Let us assume that the error was identified in June 2021 after the reporting was signed, submitted and approved.

In this case, in June 2021 the error will need to be corrected as follows:

Debit 84, Credit 60 - 500,000 rub. — the amount of rent for September 2021 has been additionally accrued; Debit 19, Credit 60 - 90,000 rub. — reflected “input” VAT on rent for September 2021; Debit 68, subaccount “Calculations for VAT”, Credit 19 - 90,000 rubles. — accepted for deduction from the budget of VAT on rent for September 2021;

In this situation, reporting for 2021 is not adjusted.

The net profit indicator for 2021 will be recalculated (retrospectively recalculated) on line 1370 “Retained earnings (uncovered loss)” of the balance sheet for 2021 and on line 2400 “Net profit (loss)” of the Income Statement for 2017 G.

Errors from previous years in reporting for 2011

“Financial newspaper”, No. 9, February 24, 2012

For more than a year now, this procedure for correcting errors in accounting and reporting has been in effect, which allows organizations not only to resubmit tax returns to the tax authority, but also to clarify the balance sheet and profit and loss statement.
The new correction methodology divided errors into significant and non-significant, and also clearly delineated the time of their occurrence. “Revolutionary” changes in working with financial statements in practice have raised many questions:

• Do the mistakes of previous years still exist?
• What should an accountant do if he has now discovered a 2010 error?
• Should these errors be reflected in the reporting for 2011 or should an updated balance sheet be submitted for 2010?

These issues will be discussed in this article.

Let us immediately note that the annual reports for 2011 may contain errors from previous years. However, first you need to qualify this error according to PBU, make sure that filing updated reports is impossible, and then adjust the annual balance sheet and profit and loss statement for 2011.

Error qualification

Changes to the previous procedure for correcting errors were established by Order of the Ministry of Finance of Russia dated June 28, 2010 No. 63n “On approval of the Accounting Regulations “Correcting Errors in Accounting and Reporting” (PBU 22/2010) (hereinafter referred to as PBU 22/2010).

Before we deal with the mistakes of the past, let's talk about situations that now do not lead to their occurrence. According to PBU 22/2010, inaccuracies or omissions in accounting and (or) reporting, identified as a result of obtaining new information that was not available to the organization previously, are now not errors. In other words, newly received data should be reflected in accounting in the generally established manner in the period when this information became known to the organization. For multiple late submission situations, this means that losses from previous years are no longer required to be recorded. Information on accounting accounts is reflected to the extent that access to it is possible. If the accountant received the counterparty's documents for the past year in the coming year, the data on such documents now forms the usual business transactions of the current period (year).

Example 1. The counterparty of Alliance LLC provided a certificate of services performed for December 2010 in May 2011. The accountant of Alliance LLC in 2010 did not have information about the amount of services provided and did not reflect it in the accounting and reporting for 2010 d. Guided by the new accounting procedure, the organization in May 2011 will make the usual accounting entries to reflect the cost of services provided to it in December 2010:

Debit 26, Credit 60 – reflects the cost of services provided in December 2010;

Debit 19, Credit 60 – the amount of VAT charged on services is taken into account.

According to the current methodology, errors and the procedure for correcting them vary depending on the level of their significance and the time of discovery (clause 4 of PBU 22/2010).

In accordance with paragraph 2 of PBU 22/2010, an error is the incorrect reflection or failure to reflect the facts of economic activity in:

• accounting and (or) financial statements of the organization for the following reasons:
• incorrect application of the legislation of the Russian Federation on accounting and (or) regulatory legal acts on accounting;
• incorrect application of the organization's accounting policies;
• inaccuracies in calculations;
• incorrect classification or assessment of facts of economic activity;
• incorrect use of information available at the date of signing the financial statements;
• dishonest actions of officials of the organization.

According to PBU 22/2010, errors for previous periods are divided into significant and insignificant. An error is considered significant if it, individually or in combination with other errors, can affect the economic decisions of users made on the basis of the financial statements prepared for this reporting period. The organization determines the materiality of the error independently based on both the size and nature of the relevant item(s) of the financial statements. The procedure for determining an error must be fixed in the accounting policies of the organization.

The significance of errors can be determined in absolute and (or) percentage terms. Materiality in absolute terms is a certain amount above which an error will be considered significant (for example, above 150,000 rubles, all errors are significant).

Materiality in percentage terms is the share in relation to any accounting indicators or financial statements item, above which the error will be considered significant (for example, 10% of the account balance or turnover and the corresponding balance sheet indicator is considered significant).

How to fix an error

Now the financial statements are being resubmitted, which means that the previous balance can be clarified. The decisive factor in its adjustment is the approval of the statements by the owners, and not submission to the inspection, after which until quite recently it was impossible to correct the balance. It all depends on when exactly the error of the previous period was identified.

PBU 22/2010 provides the following classification of errors depending on the period when they were identified:

• errors of the reporting year identified before its end;
• errors in the reporting year identified after its end but before the date of signing the financial statements;
• significant errors of the previous year identified after the date of signing the financial statements, but before the date of presentation of such statements to the owners;
• significant errors of the previous reporting year, identified after the presentation of financial statements to the owners, but before the date of approval of such statements;
• significant errors of the previous reporting year, identified after approval of the financial statements for this year;
• errors of the previous reporting year that are not significant, identified after the date of signing the reports for this year.

If the error is identified before the end of the reporting year

, then it is corrected by entries in the accounting accounts in the month of the reporting year in which the error was discovered.

If the error is detected after the end of the reporting year

, but before the date of signing the financial statements for this year, the error is corrected by entries in the corresponding accounts for December of the reporting year.

A significant error from the previous year, identified after the date of signing the financial statements, but before the date of presentation to the owners,

is corrected by entries in the relevant accounting accounts dated December of the reporting year. If the signed annual financial statements have already been submitted to the tax office, then they must be replaced.

The actions of an accountant when such an error is detected are as follows:

• making adjustment entries in December of the reporting year;
• new calculation of financial results;
• formation of new annual financial statements;
• provision of new reporting to the tax authority in place of the original one.

A significant error of the previous reporting year, identified after the presentation of the financial statements to the owners, but before their approval,

is corrected in a similar way by making entries in the relevant accounting accounts dated December of the reporting year. All users to whom the original financial statements were provided must be sent the revised financial statements. Unlike the previous situation, the revised financial statements provide an explanation that these statements replace those originally presented, and indicate the reasons for preparing the revised financial statements.

The sequence of actions of the accountant should be as follows:

• making adjustment entries in December of the reporting year;
• new calculation of financial results;
• formation of new annual financial statements;
• preparation of explanations on the need to adjust reporting;
• submission of new reports to the tax authority instead of the original ones.

A significant error in the previous reporting year, discovered after the statements have been approved by the owners, does not lead to a revision of these statements. According to clause 10 of PBU 22/2010, the annual financial statements approved by the owners are not subject to adjustment, replacement and re-submission to all its users. This means that a significant error from last year is corrected in the current period in which it was discovered.

In this case, the accountant needs to:

• reflect the entries in account 84 “Retained earnings (uncovered loss)” in the current period;
• recalculate the comparative indicators of the financial statements for the reporting and previous periods reflected in the financial statements for the current reporting year.

Recalculation of comparative financial statements is carried out retrospectively. Comparative figures are recalculated starting from the previous reporting period presented in the financial statements for the current reporting year in which the corresponding error was made.

An insignificant error for the previous year discovered after the date of signing the financial statements,

corrected during the detection period. Profit or loss resulting from its correction is reflected as part of other income or expenses of the current reporting period in accordance with clause 14 of PBU 22/2010. Amounts of profits and losses from previous years resulting from the correction of insignificant errors are written off to other income and expenses of the current period and taken into account when forming the financial result of the current year. When correcting immaterial errors, comparative indicators for previous reporting years are not adjusted in the current financial statements.

Thus, if, after the owners approved the statements for 2010, an error relating to 2010 was discovered in the accounting during 2011, the accountant will reflect such an error as an error from previous years in the current period and take it into account when preparing the annual financial statements for 2011

Adjustment of comparative balance sheet indicators

In accordance with paragraph 9 of PBU 22/2010, a significant error of the previous reporting year, identified after the approval of the financial statements for this year, is corrected by recalculating the comparative indicators of the financial statements for the reporting periods.

Restatement of comparative financial statements is carried out by correcting the financial statements as if the error of the previous reporting period had never been made (retrospective restatement).

Retrospective restatement is carried out in relation to comparative indicators starting from the previous reporting period presented in the financial statements for the current reporting year in which the corresponding error was made.

If a significant error from a previous period is identified after the statements have been approved by the owners, comparative financial statements are not adjusted if the impact of this error on one or more previous reporting periods presented in the financial statements cannot be determined. In this case, in accordance with clause 12 of PBU 22/2010, the opening balance is adjusted for the corresponding items of assets, liabilities and capital at the beginning of the earliest period for which recalculation is possible.

Situations in which the impact of a significant error on the previous reporting period cannot be determined are named in paragraph 13 of PBU 22/2010. This concerns the need to carry out complex and (or) numerous calculations, during which it is impossible to identify information indicating the circumstances that existed at the date of the error, as well as the need to use information received after the date of approval of the financial statements for such a previous reporting period.

Exceptions to the general rule are small businesses that have the right to correct a significant error for the previous year, identified after the approval of the financial statements for the current year, in a simplified manner without retrospective recalculation. In this case, losses or profits of previous years identified in the reporting period are formed in accounting. Comparative figures for previous years do not need to be recalculated in the financial statements.

The criteria for small businesses are established in the Federal Law of July 24, 2007 No. 209-FZ “On the development of small and medium-sized businesses in the Russian Federation”:

• the average number of employees for the previous calendar year should not exceed 100 people;
• sales revenue excluding VAT or the book value of assets for the previous calendar year should not exceed RUB 400 million;
• the share of participation of the Russian Federation, constituent entities of the Russian Federation, municipalities, foreign legal entities, foreign citizens, public and religious organizations (associations), charitable and other funds in the authorized (share) capital (share fund) of these legal entities should not exceed 25%;
• the share of participation owned by one or more legal entities that are not small and medium-sized businesses should not exceed 25%.

Example 2. The accounting statements of Alliance LLC for 2010 were approved by the annual meeting of owners in April 2011. In December 2011, the accountant identified an error in 2010: the cost of services in the amount of 270,000 rubles was not written off as expenses by mistake. Guided by PBU 22/2010, the accountant reflects the error in the current period and adjusts the comparative indicators of retained earnings for the year to which the identified error relates.

Initial data:

• on the credit of account 84 (in terms of retained earnings from previous years without taking into account the adjustment of a significant error in 2010) – RUB 5,000,000.
• on account credit 99 – 2,450,000 rubles;
• turnover on the debit of account 84 (in terms of correcting a significant error in 2010) – 270,000 rubles.

Balance sheet indicators for 2009 and 2010

• on line 470 “Retained earnings (uncovered loss)” for 2010 – 7950 thousand rubles;
• on line 470 “Retained earnings (uncovered loss)” for 2009 – 6,100 thousand rubles.

The retained earnings indicator reflected in the column “As of December 31, 2010” is adjusted retrospectively due to the correction in 2011 of a significant error in 2010.

The amount of retained earnings for all years, reflected in the balance sheet for 2011, is:

• as of the reporting date 12/31/11 – RUB 7,180,000. (RUB 5,000,000 + RUB 2,450,000 – RUB 270,000);
• as of December 31, 2010 – 7680 thousand rubles. (7950 thousand rubles - 270 thousand rubles);
• as of December 31, 2009 - the indicator is not adjusted - 6,100 thousand rubles.

Adjustment of the income statement

A significant error of the previous reporting year, identified after the approval of the financial statements for this year, is corrected by recalculating the comparative indicators of not only the balance sheet, but also the data in the income statement are subject to adjustment.

If an organization, using entries for 2011, corrected significant errors in 2010 that were identified after the approval of the financial statements for the corresponding year, then the indicator in line 1370 “Retained earnings (uncovered loss)” of the balance sheet for the reporting period of 2011, in which the corrective entries were made, will be differ from the indicator in line 2400 “Net profit (loss)” of the income statement for this reporting period.

The indicator in the profit and loss report is subject to adjustment for the reporting period to which the error identified in the reporting year relates, in this case it is the indicator for 2010.

Continuation of example 2. The net profit indicator for 2010, reflected in the income statement for 2011, is subject to reduction by 270,000 rubles. This value should follow from the previous lines of the income statement, so you need to recalculate the value sequentially:

• lines “Cost of sales” (increase by 270,000 rubles);
• accordingly, reduce the indicators of the lines “Profit (loss) from sales” and “Profit (loss) before tax”;
• adjust the value of the line “Current income tax”;
• reduce the “Total financial result of the period” indicator.

Reflection of data on errors in notes to financial statements

Information about significant errors of previous years corrected in the reporting period is subject to disclosure in the notes to the financial statements. This requirement is established by clause 15 of PBU 22/2010.

In accordance with clause 4 of Order of the Ministry of Finance of Russia dated July 2, 2010 No. 66n “On Forms of Accounting Reports of Organizations,” explanations for the balance sheet and profit and loss statement are drawn up in tabular or text form. At the same time, the content of the explanations, drawn up in tabular form, is determined by organizations independently, taking into account Appendix No. 3 to Order No. 66n of the Ministry of Finance of Russia.

Clause 15 of PBU 22/2010 requires the following information related to errors of previous years to be disclosed in explanations:

• nature of the error;
• the amount of adjustment for each item in the financial statements - for each previous reporting period to the extent practicable;
• the amount of adjustment based on data on basic and diluted earnings (loss) per share (if the organization is required to disclose information on earnings per share);
• the amount of adjustment to the opening balance of the earliest reporting period presented.

If it is impossible to determine the impact of a material error on one or more previous reporting periods presented in the financial statements, the explanatory note to the annual financial statements discloses the reasons for this, and also provides a description of the method for reflecting the correction of the material error in the financial statements of the organization and indicates the period starting from which has been corrected (clause 16 of PBU 22/2010).

Information about significant errors

In the explanatory note to the annual financial statements, the organization is required to disclose the following information regarding significant errors of previous reporting periods corrected in the reporting period:

1. nature of the error;
2. the amount of adjustment for each item in the financial statements - for each previous reporting period to the extent practicable;
3. the amount of adjustment based on data on basic and diluted earnings (loss) per share (if the organization is required to disclose information on earnings per share);
4. the amount of adjustment to the opening balance of the earliest reporting period presented (clause 15 of PBU 22/2010).

If it is impossible to determine the impact of a significant error on one or more previous reporting periods presented in the financial statements, then the explanatory note to the annual financial statements discloses the reasons for this, and also provides a description of the method of reflecting the correction of the significant error in the financial statements of the organization and indicates the period starting from which has been corrected (clause 16 of PBU 22/2010).

Materiality level

See what “Level of materiality” is in other dictionaries:

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