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May 2024

Adjustment of Knock-On Errors

By Dolphy D’Souza, Chartered Accountant
Reading Time 7 mins

Fact Pattern

Entity A granted a fixed Ind AS 19 Employee Benefits cash-bonus to its executive officers on 1st April 20X1. Payment of the bonus is conditional upon reaching a determined level of Ind AS 115 (Revenue from Contracts with Customers) - revenues in the 20X1-X2 Ind AS financial statements. Based on the revenues determined for the financial statements of 20X1-20X2, the revenue target was met and Entity A records the following entry:

31st March, 20X2

Dr. Compensation expense

Cr. Bonus payable

Entity A is legally entitled, and has an obligation, to clawback the bonus paid in the event the revenue target is no longer met as a result of a restatement made in accordance with Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors. During 20X2-X3, a material error was detected in the prior-year financial statements and consequently the 20X1-X2 revenues were restated in the 20X2-X3 financial statements. Based on the restated revenues, the revenue target was not met. The

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