If I have discovered an incorrect entry from Jan 2014, now (30th March 2014), when it comes to creating a correction journal I have been informed that it is very important that adjustments to the accounts and corrections are done in the correct period. but my colleague is concerned that by posting corrections in previous periods, management accounts that were sent out will now be incorrect.
Which is correct? Are management accounts constantly being evolved and corrected as the year goes by as mistakes and omissions are picked up by a book keeper throughout the year, which then ensures the accounts are accurate on a period by period basis - which means that any journal adjustments and corrections must be done in the correct periods otherwise every month will be wrong
If the decisions of a person reading the reports would have been different had the error been included then the reports should be reissued.
If the error is immaterial then the correction would be made but the reports not reissued.
Regardless, the next issued report will include the updated comparatives and a note should be included detailing the corrected issue.
I would always make the correction in the period to which it relates, not when the error was found although I appreciate that such can be more difficult with some software than others.
Just my take and as we are talking management accounts rather than stats its very much down to company policy rather than legislation and regulation to dictate the approach that you should adopt.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The previous incarnation of my business was mainly about producing management accounts. I think it depends entirely on circumstances.
- How material is the error?
- Does it distort month by month or previous year comparisons?
- What does the client want you to do with it?
- Have the management accounts been sent to banks or other outside organisations, who might be unimpressed with getting a revised version?
- Does it affect bonus payments, or have any other effect on employees, customers or suppliers?
- Does it affect a VAT Return in a way that HMRC might be difficult about?
If you have to revise the accounts, and subsequent months, date the journal in the month you're correcting. Otherwise date it in the latest uncompleted month, and add a comment to the journal explain what you've done, and maybe who you've agreed it with if it's material.
It's a great reason to aim to produce perfect accounts, so these things rarely occur! Being an extremely sad person, I used to reconcile every balance sheet account, and keep other checks, so I knew the accounts were as perfect as they could be every month. I prided myself that accountants and auditors almost never had to change my figures at year end, unless it was for some political or tax reason, and making sure everything is always as accurate as possible saves messy work at year end, as well as providing the client with information they can rely on.
