IAS 8 Revised
Dear all, kindly advice if the Suggested treatment of fraud,error e.t.c discovered which result in overstatement of cash book balance is correct:
Scenario
During preparation of bank reconciliation the cash book balance is discovered to be more by say $550,000.the accountant then decides to transfer this amount to debtors saying that this where it came from which ofcourse is not the right way of treating irregularity.
Suggested correcting entries
Dr cash and bank $550,000
Cr Debtors $550,000
Being correction of fraud, errors etc wrongly taken to debtors.
Dr Equity (There are no reserves) $550,000
CR Cash and Bank $550,000
Being write off of fraud, error discovered.
Kindly advise if this treatment is correct under IAS 8. I don’t have any worked examples in my notes.
Benaya
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Message from Alan
Fraud is classified as an error under IAS 8.
As such, we need to determine the point of the “error”, an retrospectively adjust, unless impracticable (disclosure of this fact is required).
In other words, the write off does not go directly to equity as illustrated by yourself.
Instead, you need to assess when the fraudulent events took place.
Example:
RELEVANT PERIODS
AMT
31/12/2006
100
31/12/2007
200
31/12/2008
200
31/12/2009
50
FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 2009
NOTE
31/12/2009
31/12/2008
BALANCE SHEET
(50)
(200)
INCOME STATEMENT
50
200
EQUITY
AT BEGINNING OF YEAR
AS PREVIOUSLY STATED
1,200
1,100
ERROR:
31/12/2006
100
100
31/12/2007
200
200
31/12/2008
200
ERROR
XX
(500)
(300)
AS RESTATED
700
800
Profit for the year
100
100
AT END OF YEAR
800
900
[Analysis not required in equity. For illustration purposes.]
I hope this clears things.
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