Prior Period Adjustments under FRS 102 – What You Need to Know

As technical consultants, we have come across several instances during our compliance reviews in 2025 where some firms are not dealing with prior period adjustments in accordance with FRS 102. Additionally, the related audit work often appears to be somewhat superficial.

We have therefore decided to write a series of two articles with regards to this. This first article will focus on the accounting treatment of prior period adjustments (PPA) under FRS 102, and the second article will explore how to audit prior period adjustments (PPA) effectively.

So, let’s look at PPA under FRS 102.

Prior period adjustments (PPAs) are a key area of focus in financial reporting, especially where material errors or omissions have occurred in previously issued financial statements. Under FRS 102, it’s important to understand when a PPA is required, how it should be accounted for, and what disclosures are necessary.

A prior period adjustment is required when there is a material error or omission in the financial statements of one or more prior periods. Common causes of PPAs include:

• Mathematical mistakes
• Misapplication of accounting policies
• Oversights or misinterpretation of facts
• Fraud or deliberate misstatements

The accounting treatment under Section 10 of FRS 102 include:

• Restate the prior period comparatives as if the error had never occurred
• Adjust the opening balances of assets, liabilities and equity for the earliest period presented.

The disclosure requirements include:

• Nature of the prior period error
• Amount of correction for each financial line item
• If impracticable to restate, explain why and how adjustment was applied

Following won’t be considered PPA:

• Changes in accounting estimates are not PPAs
• Corrections that don’t affect prior periods (e.g. current year adjustments) are treated differently.

Practical examples, Where PPA is needed:

• Example 1: A company failed to depreciate a class of assets in previous years. The correction involves calculating the depreciation that should have been charged and adjusting the accumulated depreciation and retained earnings.
• Example 2: A company incorrectly recognised revenue in the wrong period. The correction involves adjusting the revenue and related accounts in the periods affected.

Common mistakes in the accounts:

• Misclassification of Errors: Confusing errors with changes in accounting estimates. Errors must be corrected retrospectively, while changes in estimates are accounted for prospectively.
• Incomplete Disclosures: Failing to provide all required disclosures about the nature, amount, and impact of the error.

Conclusion:

Accurate financial reporting is crucial for transparency and reliability. FRS 102 ensures that prior period adjustments are handled consistently and transparently.

At HAT, we can help by delivering more focused training on FRS 102 and reviewing your financial statements to ensure compliance with accounting standards.