Question often asked and more than often faced is whether to restate financial statements because of an error or transaction not recognized in its proper period or not to do it. Usually there’s this tendency to restate financial statements and I have to admit, it’s not so much a judgment call but also understanding what exactly is the essence of this restatement. 

It sometimes happens that this “restatement” is in fact a change in management’s estimate, say for an example a receivable was collected after all and now you feel like you should reverse the expense of initially writing the receivable down by going back and restating statements. No. You ought not to do it since it’s a change in an estimate and those are done within the current reporting period or the period the change happened. At the time you prepare the statements and recognized the expenses you estimated that the receivable will not be collected. So this expense is reversed in current period by showing income on the same account you initially recognized the expense on.

However, what if it wasn’t an estimate that changed but in fact an error or a misstatement that you’d now like to rectify? It all comes down to the materiality of the transaction or error. Is it material to financial statements, does it bear financial significance to have the impact on statements in prior period or is it acceptable to leave the impact to this period? It’s a judgment call and it needs to be done by you. Note also that the fact you might need to present more information within the current period financial statements (i.e. a third balance sheet, disclosure note explaining what you did etc.) if you’re going back and restating prior period figures, this fact may also be a leverage to your decision.