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**PRIOR-PERIOD ADJUSTMENTS DUE TO CORRECTION OF ERRORS**

**-YEARS PRECEDING THE PRIOR YEAR**

**EFFECTIVE FISCAL 2022**

**PREPARED BY:**

**GENERAL LEDGER AND ADVISORY BRANCH**

**FISCAL ACCOUNTING OPERATIONS**

**BUREAU OF THE FISCAL SERVICE**

**U.S. DEPARTMENT OF THE TREASURY**

Version History

**Overview**

Prior-period adjustments (PPAs) may occur as a result of material corrections of errors and/or changes in accounting principles applied to an agency’s prior-year financial statements. FASB’s Accounting Principles Board Opinion No. 20 notes that “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.” (Par. 13) 

 Statement of Federal Financial Accounting Standards (SFFAS) No. 21,*Reporting Corrections of Errors and Changes in Accounting Principles,*requires entities to**restate prior period financial statements for material corrections of error(s) identified in the current period, if the statements are provided for comparative purposes and if the effect of the error(s) would be material in either period. “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 only comparative financial statements are presented the cumulative effect of correcting the error should be reported as a prior period adjustment to the beginning balance of cumulative results of operations in the statement of changes in net position (See SFFAS 21, Par. 10a, and Statement Presentation Table below.) 

· 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 to the beginning balance of cumulative results of operations, in the statement of changes in net position for the earliest period presented. (See SFFAS 21, Par. 10b and Statement Presentation Table below.)

For changes in accounting principles, prior period financial statements should not be restated, unless specified by the newly respective accounting principles.  This scenario focuses on PPAs as they relate to corrections of errors **only**.

As a result, the Reclassified Statement of Operation and Changes in Net Position (RSOCNP) crosswalk has separate lines and USSGL accounts to distinguish between corrections of errors for the prior year (USSGL account 740000) and corrections of errors in years preceding the prior year (USSGL account 740500).  

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 

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

This scenario uses Prior Year Adjustment Code (PY Adj) as they are defined in the USSGL Treasury Financial Manual (TFM) which is governed by OMB Circular No. A-11.

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**PY Adj Attribute Definition for GTAS 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 GTAS 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 GTAS 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 GTAS 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. **Note:** For situations involving the GTAS revision window, and the prior-year attribute domain value “X”, refer to OMB Circular No. A-11, Appendix F, Section 15 for more detail.

**Note**: The flowchart on the following page can assist with determining:

1) Whether or not to restate prior-year financial statements;

2) Whether to use USSGL account 740500, “Prior-Period Adjustments Due to Corrections of Errors -Years Preceding the Prior-Year,” or a different account.

3) Which PY Adj attribute to use and   

4) Which financial statement the collective information impacts.

Is the event material to your agency’s financials?

Restate.

Use USSGL

account 740000/740500*

Do **not** restate. 

Use current-year USSGL.

NO

YES

*As explained earlier, 

USSGL account 740000 is used if
Is FBWT affected?

the agency reports single year
Please refer to OMB Circular No. A-11, Appendix F, Section 15, and work with OMB and Treasury to determine if a backdated Treasury document is required.

financial statements. Otherwise

use USSGL account 740500.
YES

IF NOT REQUIRED

IF REQUIRED

NO

**Note:** For situations involving the GTAS revision window, and the prior-year attribute domain value “X”, refer to OMB Circular No. A-11, Appendix F, Section 15 for more detail.

Restated:  Transaction 2

Restated:  Transaction 3

Do **not** request a **backdated** Treasury document. 

Use PYA attribute domain value “P.”

Request a **backdated** Treasury document.

Use PYA attribute domain value “B.”

Do **not** request a **backdated** Treasury document.

Use PYA attribute domain value “X.”

Restated:  Transaction 1 

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**

1. For the illustrative transactions that begin on page 15, assume the following:

2. The following entries in this scenario show that unapportioned authority is reclassified from the PY Adj attribute domain value “X” to the “P” or “B” domain value when a Prior Year Adjustment transaction is processed. Please refer to OMB Circular No. A-11, Appendix F, Section 15, and work with OMB and Treasury to determine if a backdated Treasury document is required.

3. If a back dated document is needed, the entity should complete a back dated document request located at: Backdated Treasury Documents - Budget Community - MAX Federal Community

4. Prior-period and prior-year adjustments are not standard so there will be transactions that do not have Transaction Codes listed.

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

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

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

8. The GTAS BEA Category Indicator Attribute for illustrations purposes is discretionary.

9. The GTAS Reimbursable Flag Indicator is direct.

10. General Fund Transactions have been added to scenario.

11. Comparative financial statements are presented.

12. Budgetary transactions highlighted in light green are prior-year activities that flow to the “Fiscal 2022 Prior-Year Adjustments Activity,” Column 7 of the *Financial System Activity and Trial Balance for Budgetary**Accounts* chart, on page 25. 

13. Proprietary transactions highlighted in blue are PPAs that: require financial restatement; flow to the “FY 2022 Prior-Period Adjustments,” Column 3 of the *Work Paper Trial Balance for Proprietary Accounts*chart, on page 26; and are entered into the accounting system. 

14. “Work Paper Only” transactions highlighted in peach are PPAs that: require restatement; flow to the “FY 22 Prior-Period Work-Paper Adjustments,” Column 4 of the *Work Paper Trial Balance for Proprietary Accounts* chart, on page 26; 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.  

15. 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 Pre-closing Trial Balance – Fiscal 2021**

**General Fund of the U.S. Government**

**System Pre-closing Trial Balance – Fiscal 2021**

## **System Post-closing Trial Balance – Fiscal 2021 / Beginning Balance – Fiscal 2022**

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**General Fund of the U.S. Government**

**System Post-closing Trial Balances – Fiscal 2021 / Beginning Balance – Fiscal 2022**

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

**Note:**   Amounts in this Scenario are rounded in the thousands.

**Note:** No examples of PYA attribute domain value “X” are shown for prior-year errors in this scenario because the "X" is only used with a backdated document during a GTAS revision window. When using USSGL account 740500, the "X" will not apply because USSGL account 740500 is used when the error is discovered in years preceding the prior-year. Therefore, with USSGL account 740500, the error would be discovered too late to correct something during the GTAS revision window.

**Fiscal 2022 Accounting System Activity Summary**

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

**Work Paper Trial Balance for Budgetary Accounts – SBR ONLY[footnoteRef:12]** [12:  Considers FASAB Standard No. 21 requirements regarding PPAs but does not consider OMB Circular No. A-11 requirements regarding PYAs.] 

**Financial System Activity and Trial Balance for Budgetary Accounts (Used To Prepare SF 133/Schedule P and 2022 SBR)[footnoteRef:13]** [13:  Includes OMB Circular No. A-11 requirements regarding PYAs. ] 

**Work Paper Trial Balance for Proprietary Accounts – Restated Fiscal 2022 Comparative Financials**

**Closing Entries for Fiscal 2022**

**Post-closing Trial Balances – Fiscal 2022**

Note: The Post-closing Trial Balance (Work Paper) – Fiscal 2022 equals the Post-closing Trial Balance (System) – Fiscal 2022. 

**Post-closing Trial Balance (Work Paper) – Fiscal 2022**

**Post-closing Trial Balance (Accounting System) – Fiscal 2022**

**Balances come from pg. 26**

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**Balances from pg. 26**

For the Line 1071 balance of $750: 420100 Beginning $12,000 (column 3- 411900 closed to 420100) + 490100 Beginning (1,000) (column 3) + 490100 Ending (4,000) (column 4 – this was with PYA attribute P and shows on line 1020 of the SF 133) + 490200 Ending (6,250) (this was with PYA B and shows on line 1020 of the SF 133)

**Balances from pg. 25**

**Note: Effective FY 2021, the Reclassified Balance Sheet is the same as the Balance Sheet.  Therefore, the Reclassified Balance Sheet is not presented in this scenario.**

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**IRC Handout August 17, 2022**

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