**Prior-Period Adjustments Due to Corrections of Errors – Years Preceding the Prior Year**

**Overview**

Prior-period adjustments (PPAs), according to the Statement of Federal Financial Accounting Standards (SFFAS) No. 21, *Reporting Corrections of Errors and Changes in Accounting Principles*, occasionally occur as a result of material corrections of errors and/or changes in accounting principles applied to an agency’s prior-year financial statements.  This scenario focuses on PPAs as they relate to corrections of errors **only**.    

“Errors in financial statements result from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared.”  According to SFFAS No. 21, par. 10, “When errors are discovered after the issuance of financial statements, and if the financial statements would be materially misstated absent corrections of the errors, corrections should be made as follows... If comparative financial statements are presented... If the earliest period presented is not the period in which the error occurred and the cumulative effect is attributable to prior periods, then the cumulative effect should be reported as a prior period adjustment...” 

As a result, the Bureau of the Fiscal Service, Financial Reports Division, producers of the *Financial Report of the United States Government*, requested new lines and corresponding USSGL accounts for the Reclassified Statement of Changes in Net Position crosswalk. The new lines and USSGL accounts distinguish between corrections of errors for the prior year (USSGL account 7400) and corrections of errors in years preceding the prior year (USSGL account 7405).  

Due to the complexity of the scenario and the manner in which it is presented, we suggest the use of a color printer when generating a hardcopy.

For purposes of this scenario:

· Budgetary transactions are highlighted in light green

· Proprietary transactions are highlighted in blue

· And “Work Paper Only” transactions are highlighted in peach 

**USSGL Accounts**

**Account Number:**3105

**Account Title:**Unexpended Appropriations – Prior Period Adjustments Due to Corrections of Errors – Years Preceding the Prior Year

**Normal Balance:**Debit

**Definition:**The amount of net increase or decrease to unexpended appropriations due to errors in years preceding the prior-year’s financial statements that resulted from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared.  **(Use only when comparative financial statements are being presented.)**

***Justification:  The Financial Reports Division (producers of the Financial Report of the United States Government) requested an account to distinguish between corrections of errors for the prior year and corrections of errors in years preceding the prior year.***

**Account Number:**5705

**Account Title:**Expended Appropriations - Prior Period Adjustments Due to Corrections of Errors – Years Preceding the Prior Year

**Normal Balance:**Credit

**Definition:**The amount of net increase or decrease to expended appropriations due to errors in years preceding the prior-year’s financial statements that resulted from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared.   **(Use only when comparative financial statements are being presented.)**

***Justification:  The Financial Reports Division (producers of the Financial Report of the United States Government) requested an account to distinguish between corrections of errors for the prior year and corrections of errors in years preceding the prior year.***

**Account Number:**7405

**Account Title:**Prior-Period Adjustments Due to Corrections of Errors – Years Preceding the Prior Year

**Normal Balance:**Credit

**Definition:**  The amount of adjustments affecting the cumulative results of operations due to errors in years preceding the prior-year’s financial statements that resulted from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared.   **(Use only when comparative financial statements are being presented.)**

***Justification:  The Financial Reports Division (producers of the Financial Report of the United States Government) requested an account to distinguish between corrections of errors for the prior year and corrections of errors in years preceding the prior year.***

**Statement Presentation Table (for material errors only)**

This scenario uses Prior-Year Adjustments (PYAs) as they are defined in the USSGL Treasury Financial Manual (TFM). Refer to the original PPA scenario on the USSGL Web site at**http://www.fms.treas.gov/ussgl/approved_scenarios/index.html**for further details.

**PYA Attribute Definition for FACTS II Reporting**

Use when changes to obligated or unobligated balances occurred in the previous fiscal year but were not recorded in the appropriate Treasury Appropriation Fund Symbol (TAFS) as of October 1 of the current fiscal year or during the FACTS II revision window. Exclude upward and downward adjustments to current-year/prior-year obligations and most reclassifications from clearing accounts.

**Domain Definitions**

**“B” – Adjustments to prior-year reporting backdated in Treasury’s Central Accounting System**

Use when a PYA **does** affect the Fund Balance With Treasury (FBWT) and **is** backdated in Treasury’s Central Accounting System after the FACTS II revision window has closed for the period being adjusted.

**“P” – Adjustments to prior-year reporting not backdated in Treasury’s Central Accounting System**

Use when a PYA does **not** affect FBWT and is **not** backdated in Treasury’s Central Accounting System after the FACTS II revision window has closed for the period being adjusted.

**“X” – Not an adjustment to prior-year reporting**

Use when a PYA does not meet the requirements of domains “B” or “P” and for current-period activity. 

FLOWCHART FOR CORRECTIONS OF ERRORS IN A PREVIOUS PERIOD

This document provides guidance for correcting both financial and budgetary reporting errors. The following scenario assumes the activity occurs in a no-year Treasury Account Symbol (TAS). As presented graphically in the previous flowchart, there are six possible reporting outcomes when correcting errors, however, **this scenario only addresses the restated material errors**. The transactions, listed in the detailed chart below, correspond with the transaction numbers in the illustrative transaction section and represent each of the three possible outcomes. 

**Listing of USSGL Accounts Used In This Scenario**

**Assumptions**

For the illustrative transactions that begin on page 10, assume the following:

1. The materiality of a transaction, with respect to restatement requirements, is known when posted.

2. The agency’s accounting system for the prior period cannot be reopened.

3. The activity occurs in a no-year TAFS.

4. Comparative financial statements are presented.

5. Budgetary transactions highlighted in light green are prior-year activities that flow to the “Fiscal 2009 Prior-Year Adjustments Activity,” Column 7 of the *Financial System Activity and Trial Balance for Budgetary**Accounts* chart, on page 16. 

6. Proprietary transactions highlighted in blue are PPAs that: require financial restatement; flow to the “FY09 Prior-Period Adjustments,” Column 3 of the *Work Paper Trial Balance for Proprietary Accounts*chart, on page 17; and are entered into the accounting system. 

7. “Work Paper Only” transactions highlighted in peach are PPAs that: require restatement; flow to the “FY09 Prior-Period Work-Paper Adjustments,” Column 4 of the *Work Paper Trial Balance for Proprietary Accounts* chart, on page 17; and are not entered in an agency’s accounting system. These transactions occur outside the system and are used in calculations to determine amounts to be presented in published restated financial statements and reports. When the agency’s system cannot be reopened, balances still must be impacted appropriately. However, current-period financial statements cannot be prepared directly from the agency’s accounting system. Therefore, Work Paper adjustments are necessary.  

8. All transactions not highlighted: are current-year transactions, are posted in the accounting system, and do not fall into any of the three highlighted categories (green, blue, or peach).

**Prior-Year Trial Balances**

**System Preclosing Trial Balance – Fiscal 2008**

## System Postclosing Trial Balance – Fiscal 2008 / Beginning Balance – Fiscal 2009

**Illustrative Transactions (The agency produces comparative financial statements.)**

**Fiscal 2009 Accounting System Activity Summary**

(Assumes agency’s accounting system was not reopened to record PPAs or PYAs.)

Accounts highlighted in yellow are closed at yearend.

**Work Paper Trial Balance for Budgetary Accounts – SBR ONLY**

Accounts highlighted above in yellow are closed at yearend.

**Financial System Activity and Trial Balance for Budgetary Accounts (Used To Prepare SF 133, FMS 2108: Yearend Closing Statement, and the Budget Program and Financing (P&F) Schedule)**

Accounts highlighted in yellow are closed at yearend.

**Work Paper Trial Balance for Proprietary Accounts – Restated Fiscal 2009 Comparative Financials**

Accounts highlighted in yellow are closed at yearend.

**Closing Entries for Fiscal 2009**

**Postclosing Trial Balances – Fiscal 2009**

Note: The Postclosing Trial Balance (Work Paper) – Fiscal 2009 equals the Postclosing Trial Balance (System) – Fiscal 2009. 

**Postclosing Trial Balance (Work Paper) – Fiscal 2009**

**Postclosing Trial Balance (Accounting System) – Fiscal 2009**

**FMS 2108: YEAREND CLOSING STATEMENT (2009)**

**BALANCE SHEET (Refer to page 17)**

**STATEMENT OF NET COST (Refer to page 17)**

### STATEMENT OF CHANGES IN NET POSITION (Refer to page 17, Fiscal 2008 column reflect restated amounts)

**RECLASSIFIED BALANCE SHEET (Fiscal Years 2009 and 2008)**

**RECLASSIFIED STATEMENT OF NET COST (Fiscal Years 2009 & 2008)**

**RECLASSIFIED STATEMENT OF CHANGES IN NET POSITION (Fiscal Years 2009 and 2008)**

D = Debit

C = Credit

Y = The attribute domain value is required

Is the event material to your agency’s financials?

Do not restate. 

Use current-year USSGL.

Restate.

Use USSGL

account 7400/7405.

NO

YES

Is FBWT affected?

Is FBWT ≥ $500,000?

YES

YES

NO

NO

Restated:  Transaction 1 

Restated:  Transaction 2

Restated:  Transaction 3

Do not request a backdated Treasury document.

Use PYA attribute domain value “X.”

Request a backdated Treasury document.

Use PYA attribute domain value “B.”

Do not request a backdated Treasury document. 

Use PYA attribute domain value “P.”

� Accounting Principles Board Opinion No. 20, par. 13.

� Each agency should determine its materiality threshold. This scenario assumes that all “YES” answers in this column indicate the amount is material.

� An attribute to crosswalk to the SF 133 is not needed.

� Cross reference all “Work Paper Only Entries” to page 17.

� Transaction Codes (TC) between the same USSGL accounts and differentiated by attributes only are not displayed in the USSGL TFM Section III.

� Considers FASAB Standard No. 21 requirements regarding PPAs but does not consider OMB Circular No. A-11 requirements regarding PYAs.

� Includes OMB Circular No. A-11 requirements regarding PYAs. This chart is not used for the SBR.

� TCs between the same USSGL accounts and differentiated by only attributes are not displayed in the USSGL TFM Section III.

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**06/03/2010**