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Hello Mike
Suppose there’s a situation where a company purchased land and buildings at $700,000 and depreciated that total value (which is incorrect as the building alone should be depreciated). Now, 3 years after, it is being audited and catches the attention of the auditor. The suggestion is that the land and building be valuated and values allocated accordingly. Given that the company falls under IFRS for SMEs, and from what I’ve read, a revaluation account cannot be created, it would therefore have to be shown in the Profit and loss (please correct me if I’m wrong)
I have been reading the IFRS for SMEs, it mentions on pg 95, 17.19 that: “the entity shall account for the change in residual value, depreciation method or useful life as a change in accounting estimate….”
However it also says on pg 210: “changes in accounting estimates result from new information or new developments and accordingly are not correction of errors”
Should the discovery of the incorrect treatment of depreciation be treated as a change in accounting estimate OR would that be considered a correction of error?
Technically it should be treated as a correction of an error in prior years. I suppose the company MAY be able to get away without too much of a song and dance on the basis of immateriality.
If immateriality cannot be used as a basis for ignoring the error then I can see no alternative other than correct it as a fundamental error and restate the brought forward values for Land and Buildings and Retained Earnings
Ok Mike, so then if the value of the land and buildings is more than what it is currently shown as then there would be a debit to the asset and a credit to the P & L.
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