An accounting error (error) that arises from incorrect, false or misleading information that “immaterially” (to a limited extent) affects an entity’s financial reporting. As a result, it does not affect its decisions and those of the users of its financial statements. The materiality of an accounting error is judged by an entity’s management on the basis of an error’s impact on vital aggregates including expected income for the financial year and its expected growth over the course of upcoming financial periods. Materiality may relate to a specific period, and hence may not impact a broader timeline.
Immaterial errors in previously issued financial statements can be handled (correction of errors) in multiple ways, but not through formal restatement. Immaterial errors (those judged by management to be immaterial) may be left simply overlooked- i.e., uncorrected, or may be corrected either by means of informal revision (presentation of prior period columns in of the financial statements of a current year or the year in which an error has been identified), or by a catch-up adjustment (less visible intervention) to such statements.
Comments