370 October 20 To October 26, 2018 u Taxmann’s Corporate Professionals Today u Vol. 43 u^12
Prior Period Items- Financial reporting
perspective
Introduction
- Mistakes are part of any work. If you work, there is always
chance of committing some mistakes. This has been acknowl-
edged by the accounting principle setters. Errors, omissions
or mistakes may happen while preparation and presentation
of financial statements by the management of an entity. The
management may omit recording of or mis-state any item in the
financial statements. It may commit mathematical mistakes or
mistakes in applying accounting policies. Sometimes these errors
or mistakes are found during financial years subsequent to year
in which they were committed. In this case, the errors found
during succeeding financial years are known as prior period
errors and the related items are known as prior period items.
Under Accounting Standards (AS) framework AS 5, Net Profit or
Loss for the Period, Prior Period Items and Changes in Accounting
Policies deals with the accounting of prior period items, and
under Ind AS framework Ind AS 8, Accounting Policies, Changes
in Accounting Estimates and Errors deals with the accounting of
prior period items. AS 5 defines prior period items as income
or expenses which arise in the current period as a result of
errors or omissions in the preparation of the financial state-
ments of one or more prior periods. On the other hand, Ind
AS 8 defines the prior period errors as omissions from and
mis-statements in the entity’s financial statements for one or
more prior periods arising from a failure to use or misuse of
reliable information that was available at the time of approval
of financial statements for those periods and that could have
been taken into account in the preparation of those financial
statements. Such errors include the effects of mathematical
mistakes, mistakes in applying accounting policies, oversights
or misinterpretations of facts and frauds.
Prior Period Items and AS 5
- As defined above, prior period items refer only to the
additional income or expenses in the current period arising
due to errors or omissions in the preparation of financial
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