When is it necessary to restate the annual accounts?

When is it necessary to restate the annual accounts?

1.- Errors in the financial statements are corrected in the year in which they are detected.

2.- They are corrected by posting the adjustment against equity.

3.- For the correction, the figures of previous fiscal years must also be modified for comparison purposes.

4.- The modified information must also be included in the Notes to the Financial Statements.

Therefore, the restatement proceeds when a risk is known and noticed between formulation and approval. Provided that it significantly affects the true and fair presentation.

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When are they corrected?

The ICAC (Institute of Accounting and Auditing) indicates that accounting errors incurred in previous years are to be corrected in the year in which they are detected. The adjustment must be recorded in an adjustment to reserves. And it must be made by the cumulative effect of the variations in assets and liabilities that show that the error has been corrected. The company shall modify the figures of the comparative information and incorporate the information in the notes to the annual accounts.

The Principle of Prudence

For its part, the restatement of accounts is an exceptional event provided for in Article 38.c. CCo. (Commercial Code) and in the conceptual framework of PGC (Chart  of Accounts) which, in developing the principle of prudence, states that:

“Exceptionally, if the risks become known between the formulation and before the approval of the annual accounts and significantly affect the true and fair view, the annual accounts must be restated.”

This is the rule relating to events occurring after the end of the financial year. Therefore, it is not intended to impose on the directors a requirement to restate the annual accounts in the event of any significant circumstance occurring prior to approval by the competent body.

Reformulation is an exceptional event.

On the contrary, it is only appropriate in exceptional situations of maximum relevance. And only in relation to the company’s financial situation. That is to say, only in the face of known risks. Even if they subsequently existed at the closing date of the financial statements. Only such cases should lead to a restatement of the financial statements.

In general such reformulation should take place until the process leading to their approval is launched.


In short, accounting errors must be corrected in the year in which they are detected, and the rectification must be reflected in the financial statements for that year.

If this article has been of interest, we also suggest you to read the following article published on our website: Consolidated Annual Accounts.

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