What are Comparative Financial Statements?
IAS 1.38 requires comparative information for the preceding period for all amounts reported in the current-period financial statements. This is not optional. Every line item in the statement of financial position, income statement, statement of changes in equity, and cash flow statement must be accompanied by at least one prior-period comparator.
If the entity applies a policy change retrospectively or restates prior-period amounts, IAS 1.40A requires a third statement of financial position at the beginning of the earliest comparative period. This third balance sheet requirement is frequently overlooked in practice, particularly at mid-tier firms dealing with first-time IFRS adoption or voluntary changes in accounting policy.
ISA 710 draws a clear distinction between two approaches to comparatives. Under the corresponding figures approach (ISA 710.11), the auditor's opinion covers only the current period and prior-period amounts appear purely for context. Under the comparative financial statements approach (ISA 710.24), the auditor's report covers each period presented separately, which changes the scope of audit procedures and the form of the opinion.
Key Points
- IAS 1.38 mandates at least one prior period alongside every current-year amount.
- IAS 1.40A requires a third balance sheet when retrospective restatement or policy changes affect opening balances.
- ISA 710 distinguishes two approaches: corresponding figures (current-period opinion only) and comparative financial statements (opinion on each period).
- Inconsistent restatement across statements is a recurring inspection finding.
Why it matters in practice
FRC inspection findings have flagged files where comparatives were restated inconsistently — an adjusted income statement paired with an unadjusted balance sheet. When prior-period errors are corrected, the restatement must flow through every affected statement. Adjusting the income statement but leaving the balance sheet comparatives unchanged creates a mismatch that undermines the reliability of the financial statements as a whole.
Teams frequently forget the third balance sheet under IAS 1.40A. This is especially common during first-time application of new standards or voluntary changes in accounting policy. The requirement applies whenever retrospective application affects opening balances of the earliest comparative period.
Missing or inconsistent comparatives after restatement are among the most common findings at mid-tier firms. The fix is procedural: a restatement checklist that maps every affected line item across all statements and confirms that opening balances, comparative columns, and related note disclosures are all updated consistently.
Key standard references
- IAS 1.38–44: Comparative information requirements, including the obligation to present at least one prior period for all amounts.
- ISA 710.11: Corresponding figures approach — the auditor's opinion covers only the current period.
- ISA 710.24: Comparative financial statements approach — the auditor's report covers each period presented separately.
- IAS 1.40A: Third balance sheet requirement when retrospective restatement or policy changes affect the earliest comparative period.
Related terms
Frequently asked questions
What is the difference between corresponding figures and comparative financial statements?
Under the corresponding figures approach (ISA 710.11), the auditor's opinion covers only the current period and prior-period amounts appear for context. Under the comparative financial statements approach (ISA 710.24), the report covers each period presented separately.
When is a third balance sheet required?
IAS 1.40A requires a third statement of financial position at the beginning of the earliest comparative period when the entity applies a policy change retrospectively or restates prior-period amounts.