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According to IAS8 Accounting policies, changes in accounting polices and errors, prior period adjustments are omissions from, and misstatements in , the entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
* Was available when the financial statements for those periods were authorised for issue, and
* Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.
Examples include the effects of mathematical mistakes, mistakes in applying accounting policies bt the organisation, fraud by members of staff and oversights or misinterpretation of facts by employees in a company etc
Accounting for prior period.
Prior period adjustments are accounted for the financial statement retrospectively that is measurement and disclosure of amounts of elements of financial statements as if a prior period adjustment had never occurred.
Prior Period items usually adjusted in P&L Account
i.e. recognized as Prior Period Income or Expenses
Eg. Previous year Interest Income not recorded in our books of accounts
Then, same should be reported under P&L with note in Audit Report, this item shall be considered as in-admissible Income during Financial report year (current year)
Same treatment w.r.t. Expenses which are not recorded in previous year & reported during current year (Reporting year).
I hope that, above clarification along-with example clarifies your question.
Rajesh
