**CORRECTIONS OF ERRORS THAT OCCURRED IN PREVIOUS PERIODS**

**PRIOR-PERIOD ADJUSTMENTS (FINANCIAL REPORTING) AND PRIOR-YEAR ADJUSTMENTS (BUDGETARY REPORTING)**

*This scenario uses information from the August 2008 U.S. Government Standard General Ledger, which is a Supplement to the Treasury Financial Manual (TFM) See Transmittal Letter No. S2 08-03, Part 1, Section IV Budget Program and Financing (P&F) and Part II, Sections I through IV.*

**Background**

Occasionally, financial statements and other Treasury central accounting documents require adjustments to correct errors that occurred in previous periods. The Federal Accounting Standards Advisory Board (FASAB) and the Office of Management and Budget (OMB) provide guidance to account for these events. 

**Prior-Period Adjustments (PPAs)**

In the Statement of Federal Financial Accounting Standards (SFFAS) No. 21, *Reporting Corrections of Errors and Changes in Accounting Principles, Amendment of SFFAS No. 7, Accounting for Revenue and Other Financing Sources*, FASAB amended the standard to “require that reporting entities restate prior-period financial statements for material errors discovered in the current period, if such statements are provided for comparative purposes, and if the effect would be material to the financial statements of either period.” 

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

**Prior-Year Adjustments (PYAs)**OMB concluded that the existing practice of correcting errors for previous periods by recording prior fiscal year activity during a current fiscal year without specific identifying attributes distorted budgetary reporting. While the resulting misstatements of information were not always material in the context of financial statement reporting, they were significant in the context of budget reporting and execution. OMB Circular No.A-11 was updated in fiscal 2008 to provide budgetary reporting guidance for corrections of errors.  The Bureau of Fiscal Service(Fiscal Service) issued TFM Volume I Bulletin No. 2008-05 to address processing backdated documents to a prior fiscal year. In addition, Fiscal Service updated the U.S. Government Standard General Ledger (USSGL), TFM Supplement No. 2, in December 2007 to provide specific information on the new PYA attribute required in the Federal Agencies' Centralized Trial-Balance System (FACTS) II and the crosswalks to the SF 133: Report on Budget Execution and Budgetary Resources.

**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. 

**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 7400, “Prior-Period Adjustments Due to Corrections of Errors,” or a different account;

3) Which PYA attribute to use: and   

4)  Which financial statement the collective information impacts.

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 different possible reporting outcomes when correcting errors. The transactions, listed in the detailed chart below, correspond with the transaction numbers in the illustrative transaction section and represent each of the six possible outcomes. 

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

**Assumptions**

For the illustrative transactions that begin on page 8, 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 “Prior-year Adjustments,” column 7 of the *Financial System Activity and Trial Balance for Budgetary**Accounts* chart on page 14. 

6. Proprietary transactions highlighted in blue are PPAs that a) require financial restatement, b) flow to the “FY09 Prior-period Adjustments,” column 3 of the *Work Paper Trial Balance for Proprietary Accounts*chart on page 15, and c) are entered into the accounting system. 

7. “Work Paper Only” transactions highlighted in peach are PPAs that a) require restatement, b) flow to the “FY09 Prior-period Work-Paper Adjustments,” column 4 of the *Work Paper Trial Balance for Proprietary Accounts* chart on page 15, and c) 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 a) are current-year transactions, b) are posted in the accounting system, and c) do not fall into any of the three highlighted categories (green, blue, or peach).

**Prior-Year Trial Balances**

**System Pre-Closing Trial Balance– Fiscal 2008**

## System Post-Closing Trial Balance – Fiscal 2008 / Beginning Balance – Fiscal 2009

**Illustrative Transactions**

**Fiscal 2009 Accounting System Activity Summary**

(Assumes agency’s accounting system was not reopened 

to record PPAs or PYAs.)

Accounts highlighted above 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, USSGL 2108: Yearend Closing Statement, and the Budget Program and Financing (P&F) Schedule)**

Accounts highlighted above in yellow are closed at yearend.

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

Accounts highlighted above in yellow are closed at yearend.

**Fiscal  2008 Pre-Closing Trial Balance Comparisons**

****

**Fiscal  2009 Pre-Closing Trial Balance Comparisons**

**Closing Entries for Fiscal 2009**

**Post-Closing Trial Balances – Fiscal 2009**

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

**Post-Closing Trial Balance (Work Paper) – Fiscal 2009**

**Post-Closing Trial Balance (Accounting System) – Fiscal 2009**

### Fiscal 2009 SF 133: STATEMENT OF BUDGETARY EXECUTION AND BUDGETARY RESOURCES

This SF 133 is not the same as the Statement of Budgetary Resources (SBR) because of the impact of the different budgetary

and accounting regulations noted throughout this scenario.  Remember, SF 133s are never restated, while SBRs may be restated.

**USSGL 2108: YEAREND CLOSING STATEMENT (XX09)**

### COMPARATIVE Statement of Budgetary Resources

**BUDGET PROGRAM AND FINANCING (P&F) SCHEDULE (Fiscal 2009)**

**Beg. Bal. from page 14, col. 9**

**End Bal. from page 14, col. 3**

**BALANCE SHEET**

**Ending Bal. from page 15**

**STATEMENT OF NET COST**

**Ending Bal. from page 15**

### STATEMENT OF CHANGES IN NET POSITION

**Ending Bal. from page 15**

**RECLASSIFIED BALANCE SHEET AS OF SEPTEMBER 30, 2009, AND 2008**

**RECLASSIFIED STATEMENT OF NET COST**

**FOR THE YEARS ENDED SEPTEMBER 30, 2009, AND 2008**

**RECLASSIFIED STATEMENT OF CHANGES IN NET POSITION**

**FOR THE YEARS ENDED SEPTEMBER 30, 2009, AND 2008**

Is the event material to your agency’s financials?

Do not restate –

Use current-year USSGL

YES

Request a backdated Treasury document –

Use PYA attribute domain value “B”

Do not request a backdated Treasury document - 

Use PYA attribute domain value “X”

Is FBWT ≥ $500,000?

YES

Do not request a backdated Treasury document –

Use PYA attribute domain value “P”

Is FBWT affected?

YES

NO

Restate

(Use USSGL

account 7400)

NO

NO

        Restated:  Y,Y,N Transaction 3

Not Restated:   N,Y,N Transaction 6

        Restated:  Y,Y,Y Transaction 2

Not Restated:   N,Y,Y Transaction 5

        Restated:  Y,N Transaction 1 

Not Restated:   N,N Transaction 4

Differences between SF 133 and SBR explained:

PPAs are required for material corrections of errors, and fiscal 2008 statements are restated. For details about the material corrections, see transactions 1, 2, and 3 and column 4 of the Work Paper Trial Balance for Budgetary Accounts – SBR Only. OMB Circular No. A-11 does not permit restatement of the SF 133. OMB Circular No. A-136 requires restatement of the SBR for material corrections.

Differences between fiscal 2008 Published and Fiscal 2008 Work Paper for Fiscal 2008 Restated explained:

PPAs are required for material corrections of errors, and fiscal 08 is restated for presentation in fiscal 2009 Comparative Financials. For details about the material corrections, see transactions 1, 2, and 3 and column 4 of the Work Paper Trial Balance for Proprietary Accounts – Restated FY 08 Financials. See fiscal 2009 trial balances for impact of PPAs on the system.    

Differences between SF 133 and SBR explained:

The fiscal 2008 SBR was restated to reflect material PPAs, however, the fiscal 2008 SF 133 was not. Also, there are different rules for determining what events/transactions qualify as PPAs to financial statements and those that qualify as PPAs to the SF 133. The SF 133 is prepared directly from system entries, while the SBR is adjusted on the Work Paper. 

Differences between fiscal 2009 system and fiscal 2009 Work Paper adjustments explained:

Agency accounting systems are assumed to not be reopened in order to post PPAs to the actual system records. Restatements are assumed to be prepared through Work Papers.     

� SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles, paragraph no. 5

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

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

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

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

� TCs between the same USSGL accounts and differentiated by only attributes 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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