Three column balance sheet (Restatement)

Financial statements of a period include comparative information to provide the users of financial statements something to compare, and to provide useful information for various analyses purposes. Usually, the comparative information is related only to one prior period, i.e., immediately preceding the reporting period.

However, in certain cases, additional comparative information is required for the users of financial statements and three balance sheets are disclosed i.e., the balance sheets as at:

  • the end of the current period,
  • the end of the preceding period, and
  • the start of the preceding period.

As per IAS-1 paragraph 40A, Three column balance sheet is required to be disclosed by an entity if:

  • it applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassifies items in its financial statements; and
  • the retrospective application, retrospective restatement or the reclassification has a material effect on the information in the balance sheet at the beginning of the preceding period.

In short, if an entity is changing the prior period’s numbers or prior period’s classifications, AND this change has a material impact on the information in the balance sheet at the start of the preceding period, then three column balance sheet will be required.

Let’s look at an example to get a better picture of this concept.


XYZ Company is preparing its financial statements for the year ended 31 December 2021. It’s balance sheet as at 31 December 2020 is given in the previous post “Balance sheet”.

The Chief Accountant of XYZ Company noticed that an item of property, plant and equipment was fully depreciated on 31 December 2018, however, its depreciation is still being charged. Annual depreciation of this item is $15,000.

The Chief Accountant has reversed the current year’s depreciation, however, this error was not identified and rectified in the balance sheets as at 31 December 2020 and 2019. As a result,

  • PPE was understated by $15,000 in 2019 and by $30,000 in 2020.
  • The corresponding effect of overcharged depreciation expense was appearing in the form of understatement of retained earnings by $15,000 in 2019 and by $30,000 in 2020.

This prior period error will be rectified retrospectively, i.e., current year’s financial statements will be prepared by rectifying the error when it occurred. As a result, the comparative information will be restated.

In the notes to the financial statements, some additional information will be disclosed for the users of the financial statements such as:

  • the nature of the prior period error;
  • the amount of the correction for each financial statement item etc.

Accounting of prior period errors will be discussed in detail in the topic “IAS – 8 Accounting policies, changes in accounting estimates and errors”.