How to correct errors in financial statement data
2024/05/23
- Mai Thi Dung
Introduction
Financial statements are comprehensive reports that summarize information about a company’s assets, capital, operating results, and financial position for a certain period of time. They are one of the important sources of information for companies, investors, and creditors to evaluate business operations and financial status and make appropriate business and investment decisions. When preparing financial statements, the principles of honesty and objectivity must be maintained in order to properly communicate the company’s financial position to stakeholders such as the president, investors, and creditors. However, in practice, if a company makes errors in its accounting data when preparing and disclosing financial statements, the company’s situation may not be accurately reflected, which could have a negative impact on investment and management decisions by investors and creditors.
What should you do if you find an error in the accounting data in your financial statements? This paper explains how to correct errors in accounting data based on Vietnamese accounting standards.
1. Classification of errors in financial statement data
Vietnam Accounting Standards (VAS 29) states that accounting errors arise from miscalculation, misapplication of accounting policies, omissions, misinterpretation and fraud. Accounting errors are classified into material errors and immaterial errors depending on the severity of the error. The significance of an error is usually considered quantitatively (the amount) or qualitatively (the nature of the error). Therefore, the determination of whether something is material will depend on the nature and size of the item and the size of the company. For example, failing to account for fixed assets worth VND100 million may not be significant for a large enterprise, but it can be a significant error for a small enterprise.
The difference between important and non-important errors is as follows.
| Important Errors | Non-critical Errors |
| – Intentional or unintentional errors – If the error significantly distorts the financial statements – When it can influence the decisions of people who use financial information |
– Unintentional mistakes – When the error is minor and does not significantly distort the financial statements – If it does not affect the decisions of people who use financial information |
Source: Compiled by the author based on various sources
2. How to adjust for errors in financial statement data
The Accounting Act 2015 provides that there are three ways to correct errors in accounting books.
| (1) How to correct by drawing a straight line | (2) Correction using brackets | (3) Correction by adjusting entries |
| A line is drawn through the relevant area, the correct number or letter is written over it, and the chief accountant’s signature is placed next to it. | The incorrect amount is enclosed in red brackets, the correct amount is written underneath, and the chief accountant signs next to it. | Prepare an adjustment voucher and record the difference. |
Source: Compiled by the author based on various materials
Currently, many companies use accounting software and business management systems to record their accounting books and prepare financial reports, so when making corrections, it is common to use the method described in (3) above.
3. Adjustment of errors in financial statement data
When an error in accounting data is detected in financial statements, the company’s accounting staff must determine the significance of the error and appropriately correct the accounting data in order to provide accurate financial reporting. According to Vietnamese accounting standards, material errors and non-material errors are defined as follows.
| Error classification | How to correct it |
| 1. Insignificant mistakes | – Determine the impact of the error (amount, affected accounts) – Correct the error in the accounting year (current period) in which it was discovered. * Errors that occurred in the previous period will require correction regardless of whether they occurred in the current period. |
| 2. In case of a significant error | |
| 2.1 Significant errors that occurred during the period | – Determine the impact of the error (amount, affected accounts) – Correct the error in the accounting year (current period) in which it was discovered. |
| 2.2 Errors that occurred in the previous period or earlier and were detected before the financial statements for that fiscal year were effective | – Determine the impact of the error (amount, affected accounts) – Correct the financial statements for the relevant fiscal year before their issuance. |
| 2.3 Errors that occurred in a previous period or earlier but were discovered after the financial statements for that fiscal year were prepared | – Determine the cumulative impact of the error on the pottery (amount, accounts affected) – Revise the initial balances of assets, liabilities and equity in the current period’s balance sheet – Correct comparative information (sales and expenses for the previous period) in the current period’s income statement – Correct the comparative information in the current period’s cash flow statement (items in the previous period column) |
Source: Compiled by the author based on various sources
In conclusion
Above, we have explained how to adjust errors in accounting data in financial statements in accordance with Vietnamese accounting standards. Understanding this provision will enable enterprises to properly deal with errors that occur during the process of recording their accounting books and preparing financial statements, and to prepare proper financial statements in accordance with Vietnamese accounting standards. This allows companies, investors and creditors to have an accurate view of a company’s financial position, which can lead to better business and financial decisions.
reference
・Vietnam Accounting Standard No. 29
・Accounting Act 2015
M000112-182
(Created on May 23, 2024)
