An example of a prior year adjustment – IAS10
International Accounting Standard 10 (IAS10) requires companies to make what is termed a prior year adjustment to its financial statements on a number of grounds. One reason is the discovery of an error of a material nature. Here’s a recent example from TUI Travel, one of Europe’s biggest travel operators. The (London) Independent reported on Oct 22, 2010 how TUI has to write off £117m (above 20% of its current year profits) as a result of errors in pricing systems.
TUI’s website reports the following adjustments:
- A reduction of underlying operating profit for the year ended 30 September 2009 of £42m from £443m to £401m, all of which relates to TUI UK.
- A reduction in opening reserves at 1 October 2008 of £70m, from £2,286m to £2,216m.
- As a result of the two adjustments above the separately disclosed items of £29m announced in the Q3 results will no longer be required.
- A reduction in the underlying earnings per share for the year ended 30 September 2009 of 2.8p from 23.8p to 21.0p.
This is a good example of IAS10 at work.
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