Understanding Multiple GAAPs and Prior Period Adjustments
PeopleSoft software delivers the ability to book accounting transactions according to different and often conflicting accounting principles for one Business Unit in one ledger and to maintain these entries in compliance with the rules of government and regulatory organizations.
This section discusses:
Prior period adjustments.
GAAPs as determined in one country or jurisdiction often vary from country to country or by self-governing accounting bodies and jurisdictions. Consequently, organizations record and report their operations according to local accounting requirements as well as by rules applicable to parent corporations that are often under the rules of another national jurisdiction.
PeopleSoft software provides the ability to maintain separate ledgers and ledger groups for different accounting principles, record transactions under varying statutory rules using Alternate Account and using MultiBook in PeopleSoft General Ledger and its subsystems for its automatic synchronization capabilities. However, entering separate entries for a transaction in a local ledger of a ledger group is sometimes viewed as less than optimal due to the manual nature of the approach.
PeopleSoft software supports a sometimes much favored method, especially within financial organizations. This method enables you to simultaneously generate in one business unit and ledger all the relevant accounting entries for a transaction that addresses different local and corporate accounting rules.
You can use book codes to simultaneously generate sets of entries to record related transactions according to multiple GAAPs for the same business unit in the same ledger. For example, where local and corporate accounting principles are not compatible, you define a local (L) and a corporate (C) book code. For those situations where requirements are alike, you define a code for both (B). You can attach these book codes to accounts as attributes. This results in separate permutations of accounts and book codes in which you simultaneously record related transactions under local, corporate, or both rules.
You can choose to associate a single book code with one account value. Using this method, a unique account value must be created for each book code. For example, book code C would be associated with account 500001, book code L with account 500002, and book code B with account 500003, to record related amounts in the same ledger but effectively in different books. When you choose this method, book code appears as a read only field on the journal entry page when you enter the account, and book code cannot be modified at time of entry.
PeopleSoft software also provide an Allow Book Code Override option at the installation level on the Account page that enables you to choose book code and account combinations at the time of journal entry. Using this method, you can associate any of your book codes with the same account value to record related amounts in the same ledger—effectively creating separate books in the same ledger while using the same account. The main advantage of this method is that fewer account values are required. You must set up book code defaults for an account; you can then update the book codes by selecting from a drop down list at the time of journal entry.
Local regulatory rules often specify local deadlines that differ from corporate deadlines. For example, they might require local entities to adjust period balances beyond the deadline specified by rules imposed on the corporate headquarters. This can create what is called a prior period adjustment from the standpoint of corporate books.
In the classic sense, a prior period adjustment is any adjusting entry made to a closed period for which financial results have been published and usually comes as the result of an audit finding that an adjustment must be made. For this discussion, prior period adjustments are entries that are mandated by local accounting rules that require that certain entries be made to the local books for a specified period of time after corporate books must be closed and not necessarily as the result of an audit finding.