An accounting error (error) that arises from incorrect, false or misleading information that “materially” (excessively or to a great extent) affects an entity’s financial reporting, and as a result its decisions and those of the users of its financial statements. Material errors in previously issued financial statements must be corrected (correction of errors) through formal restatement.
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. For example, if an error is material in connection with an interim period, but not to the accounts of the financial year, then it should be confined to the interim period and its financial reports, that is, disclosure of this error should only be made in the interim period.
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