According to the Bureau of the Fiscal Service, the federal government has a system of governmentwide accounting that aims to report accurate, current, and consistent financial information using uniform standards and centralized reporting. The government publishes reports of its financial information to help set policies and inform the public about how it collects and spends money.
However, sometimes there are accounting errors and omissions in the recording or reporting the government’s financial transactions. These can result from mistakes, oversights, misinterpretations, fraud, or other causes. Accounting errors and omissions can affect the reliability, comparability, and fairness of the financial statements.
The Federal Accounting Standards Advisory Board (FASAB) sets the accounting standards and concepts for the federal government. It also guides accounting for changes and corrections in the financial statements. According to the Statement of Federal Financial Accounting Standards (SFFAS) No. 213, an error correction is an adjustment of previously issued financial information that resulted from mathematical mistakes, mistakes in applying accounting principles, or oversight or misuse of facts that existed when the financial statements were prepared.
The cost of accounting errors and omissions can vary depending on the nature, magnitude, and impact of the error or omission. Some errors or omissions may have minimal or no effect on the financial statements, while others may have significant or material impacts that require restatement or disclosure. For example, according to a report by the Office of the Presidential Adviser on the Peace Process (OPAPP), various accounting errors and omissions in recording resulted in the overstatement and understatement of the affected accounts’ year-end balances by P 440,790,672.00 and P102,043,800.00, respectively; thus, not fairly presented in the Financial Statements (FSs).
Accounting errors and omissions can also include indirect costs such as reputational damage, loss of trust, legal liability, or regulatory sanctions. For example, according to Circular 230 §10.21, a CPA who discovers an error or omission concerning any federal tax must promptly advise the client of the error or omission and the consequences under the Code and regulations of the error or omission. Failure to do so may result in disciplinary action by the IRS.
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