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Prior period item

Max Payne (employed) (2569 Points)

08 October 2010

Hi friends

I am in a perplexing situation.

Client has to be audited u/s 44AB for the first time.

During the last 12 years, Bank reconciliation was not done.

The opening bank balance as per pass book is 75k less than the accounts balance.

Can we write this off to P&L and disallow in the computation as prior period item?

(BRS not done - does this qualify as error or omission?)

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3 Replies

Suresh Prasad (www.aubsp.com) (15630 Points)
Replied 08 October 2010

Dear Friend,

The term ‘prior period items’, as defined in para 4 of AS-5 refers only to income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. The term does not include other adjustments necessitated by circumstances, which though related to prior periods, are determined in the current period.

You should ask for the preparation of BRS to your client for the 12 years and see that whether the item for which the difference of 75k is acertained are INCOME or EXPENCE related.

Now you should pass the journal entry for the same in the books of account and after that it should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived.An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss.

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Max Payne (employed) (2569 Points)
Replied 08 October 2010

Dear Suresh,

Thanks for your valuable opinion.

But books also are not there for such period, and 12 years BRS though I am agreeing with you that it should be done, it does not appear possible to obtain the same....

We are going to give a qualified report due to some other reasons also.

Can i put this point in the qualifications and disallow? (will it open section 145??)

Note: Assessee is not a registered body under any act, just an association....