Anything Worth Doing Is Worth Doing Right – The Benefits of Correcting Errors and Restating the Financial Statements Management is responsible for the preparation and presentation of the financial statements in accordance with Canadian Public Sector Accounting Standards (PSAS). In discharging its responsibilities for the integrity and fairness of the financial statements, management must ensure accounting systems, internal controls, and records are properly maintained to provide reliable information. But sometimes mistakes make their way into financial statements; and when an error is discovered, it should be corrected. That’s exactly what the Peace River Regional District (PRRD) did in preparing its 2018 audited financial statements. They discovered a material accounting error dating back to prior years and took the painstaking steps to make it right. This article aims to shed light on the benefits of correcting errors and the value of restating the financial statements.
standards requires professional judgment but the choice was clear; the 2018 financial statements had to be restated in order to correct the error.
Background After the audit of the 2018 financial statements, the Chief Financial Officer at the time, Lyle Smith, questioned why the auditor had made the following adjusted year-end entries that resulted in:
Lessons Learned and Benefits of the Restated Financial Statements Fundamentally, the exercise in restating the 2018 financial statements was required under PSAS. When material errors are identified, it is the duty of the government and management to resolve those errors. Integrity and fairness are at the core of management’s responsibilities, and as such, restating financial statements should be encouraged and not something to fear. Furthermore, a key benefit of the restatement provided PRRD with improved confidence and support from the Board. Financial statements are fundamentally a communication tool; improving the accuracy will serve to improve the overall trust in the statements. Smith underscored the integrity of the numbers as the most important reason changes were made to the financial statements. After explaining the issue and reviewing the resulting statements, the Board was very supportive of
• $2.26M understated tax requisition revenue • $12.39M overstated tax receivable Smith examined the discrepancy and noticed material accounting errors from prior periods. In previous years, the auditor was performing a majority of the year-end entries and misunderstood the nature of the tax requisition for the regional government. In doing so, the auditor recorded $13.9M in tax receivable which represented future years tax requisitions. Smith determined the revenue recognition was contrary to PSAS 3510 - Tax Revenue because the taxable event had not yet occurred. Applying accounting 16 | GFOABC.CA
“As painful as it may be, it was for the integrity of the organization” —Former Chief Financial Officer, PRRD, Lyle Smith
Once the material errors had been addressed and the financial statements had been restated, the issue was brought forward to the Board with confidence that the accounting error had no impact on the Regional District’s cash position.
