Final answer:
When comparative FS are presented without the year with errors, a prior period adjustment must be made to correct material errors by retrospectively restating the affected financial statements and fully disclosing the corrections in the notes to the statements.
Step-by-step explanation:
If comparative Financial Statements (FS) are presented and Financial Statements for the year with errors are not presented, it typically implies that a prior period adjustment is needed. The company should correct material errors by restating the prior period financial statements. Restatement is necessary to correct the error and provides users with accurate historical financial information.
To correct the errors, the company must retrospectively apply the correction to the financial statements of the prior period in which the error occurred, if practicable. If the error is discovered in a later period, the correction is made to the beginning balances of assets, liabilities, and equity for the earliest period presented.
The restatement of financial statements typically involves three key steps:
- Identification of the error.
- Calculation of the impact of the error on previous financial statements.
- Restatement of the affected financial statements to correct the error.
It is also important to disclose the nature of the error and the impact on the financial statements in the notes to the financial statements for full transparency to users.