What are comparative financial statements?
FRC inspection reviews keep flagging the same pattern: a client restates prior-period revenue in the income statement and the balance sheet comparatives never move. The file contains the restatement memo, the IAS 8 disclosure, and a signed-off comparative column that tells a different story. That mismatch is the finding most likely to land a mid-tier file on a follow-up list, and it is the first place a reviewer looks when comparatives have been touched.
At our practice we treat the comparative column as live audit evidence, not last year's leftovers. Comparative financial statements are the current-period FS plus at least one prior period, governed by IAS 1.38 and brought into scope of the audit by ISA 710 . Every line item in the statement of financial position, income statement, statement of changes in equity, and cash flow must carry a prior-period comparator, with the third balance sheet added under IAS 1 .40A where retrospective restatement hits opening balances. The file should tell a story. When the comparatives contradict the restatement memo, the story falls apart.
ISA 710 splits the territory into two approaches. 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, which changes the scope of 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
We've seen this on about half the restatement engagements we've picked up mid-year. The income statement gets adjusted, the IAS 8 note is drafted, everyone signs off on the error correction. The balance sheet comparatives sit unchanged because nobody re-runs the rollforward once the adjustment lands. When prior-period errors are corrected, the restatement has to flow through every affected statement, and the opening retained earnings number is usually where the mismatch first shows up.
The third balance sheet under IAS 1 .40A is the second recurring miss. It applies whenever retrospective application affects opening balances of the earliest comparative period, which means any first-time adoption of a new standard and every voluntary policy change. Nobody enjoys adding a third column two weeks before filing, but skipping it is how files get flagged.
The fix is procedural, not technical. A restatement map tied to the TB that lists every affected line item across the income statement, balance sheet, equity movement, cash flow, and notes, then confirms each one has been updated consistently. If an experienced reviewer with no prior connection to the engagement cannot follow the restatement through the file, the work papers fail the documentation test under ISA 230.8 .
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
Related reading
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.