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Question on IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
One of my manufacturing client has been providing to P & L for inventory based on the aging of the inventory (for e.g. 50% of the cost if the stock is older than 2 years and 100% if it is older than 3 years, they book in P & L as provision for obsolete stock similar to provision for doubtful debts) from last few years. However, recently they became aware that there was an issue with the ERP - if the inventory was transferred from one branch to another, it will show as 0 days aging in the other branch (even if the stock was more than 2 years old in 1st branch) and thus the provision would reduce by the amount pertaining to that stock. The cumulative amount of this over several years has become material. Client wants to correct this now.
Would this correction require restating the previous periods' financials based on the impact on amounts for each year and thus the opening retained earnings will be corrected OR this correction can be posted in current year as an extraordinary item (below the current year profit) without restating previous financials?
P.S. it is neither a change in accounting policy, accounting estimate nor an human error (it happened due to ERP not configured correctly and not by any person posting a wrongly calculated amount - it is not error like for e.g. instead of providing 50% on 2+ years stock, someone calculated 50% on 1+ year stock).
Please advise the treatment.
Regards,
Pratik
One of my manufacturing client has been providing to P & L for inventory based on the aging of the inventory (for e.g. 50% of the cost if the stock is older than 2 years and 100% if it is older than 3 years, they book in P & L as provision for obsolete stock similar to provision for doubtful debts) from last few years. However, recently they became aware that there was an issue with the ERP - if the inventory was transferred from one branch to another, it will show as 0 days aging in the other branch (even if the stock was more than 2 years old in 1st branch) and thus the provision would reduce by the amount pertaining to that stock. The cumulative amount of this over several years has become material. Client wants to correct this now.
Would this correction require restating the previous periods' financials based on the impact on amounts for each year and thus the opening retained earnings will be corrected OR this correction can be posted in current year as an extraordinary item (below the current year profit) without restating previous financials?
P.S. it is neither a change in accounting policy, accounting estimate nor an human error (it happened due to ERP not configured correctly and not by any person posting a wrongly calculated amount - it is not error like for e.g. instead of providing 50% on 2+ years stock, someone calculated 50% on 1+ year stock).
Please advise the treatment.
Regards,
Pratik