ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The improvement of auditing and disclosing for correction of prior period errors in financial statements

  • Park, Jong-Seo School of Business Administration, Sookmyung Women's University

Asian Tax Journal Vol. 20 No. 1 (2019), pp. 67-94

Abstract

Conflicts are increasing in recent times between the incumbent auditor and the former auditor because while the incumbent auditor, who is a designated auditor, has requested the restatement of the prior period financial statements, the former auditor does not agree with it. In particular, if the adjustment requested by incumbent auditor may be a change in accounting estimates, rather than an obvious error, the conflicts between the two auditors become more severe. The managements who are responsible for the preparation and disclosure of the financial statements should review and make a final judgment on the necessity of adjustment. However, most managements restate financial statements because they can get qualified opinion if they do not accept the request of the incumbent auditor. Restated financial statements may be provided to information users without any verification process. In addition, the financial statement in the annual report and the financial statements attached to the audit report would be different if the company reissued the past annual report to reflect the error correction, but the former auditor did not agree with it. Therefore, in this paper, we propose improvement of audit and disclosure for correction of prior period accounting errors, so as to contribute reliable information to the investors and minimize the confusion of the capital market. The results of this study are expected to be useful for the improvement of auditing and reporting system related to the correction of errors.

Keywords

  • correction of prior period errors in financial statements
  • financial restatement
  • annual report
  • external audit

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