Financial statements are used by creditors and investors to determine the financial health or risk of a business. Think about it this way, when you visit a new doctor, you are asked to complete a new patient form that asks for your past and present medical history. This is the medical providers’ way of getting a snapshot of your overall health and/or risks.
Growth of a business is determined by its financial integrity and inaccurate statements can threaten its reputation and credibility. Discrepancies not only impact the business but there could be negative impacts on pensions, stocks, 401k plans, financial decisions, etc. To fully understand the magnitude of not correcting and reporting discrepancies one would only need to research Enron. All discrepancies do not reach this magnitude but the importance of reporting and correcting discrepancies are just as important.
Typically discrepancies are found when an account reconciliation is performed. These errors are generally corrected the following month with a correcting journal entry. However, making a correction after a financial filing is a bit more complex. The business is required to restate their financials and will have to show the correction for subsequent years.