Retained earnings changed: someone edited a closed year

Symptom

This year's balance sheet shows prior-year retained earnings of 96,400; the statements the tax return was prepared from said 87,100. The preparer asks what changed; nobody knows. Comparative reports no longer agree with anything previously issued, and next year's return will start from a number that matches no filing.

Why it happens

Retained earnings is not a posted balance — it recomputes live from every income and expense transaction in all prior years, plus distributions. Anything that touches a closed year moves it silently:

• A duplicate expense from a filed year, deleted this year (profit rises retroactively).
• A late bill entered with last year's date instead of received-date.
• A bank feed reconnect that re-imported old transactions (/bookkeeping/cleanups-fixes/duplicate-transactions-fix).
• A well-meant recategorization between a P&L and balance sheet account, dated in the closed year.
• A voided stale check originally written last year (/bookkeeping/cleanups-fixes/uncleared-transactions-cleanup).

If no closing date was ever set, the closed year was never actually closed — just old.

The fix

1. Quantify the drift. Run the prior-year balance sheet today and set it against the copy issued at filing. Note the retained-earnings difference and check whether other lines moved too (a pure P&L edit moves only equity; a cash edit moves cash as well).
2. List the changes. Run the closing-date exception report if a closing date existed; otherwise filter the audit log to transactions created or modified after year-end but dated within the closed year. Match the list's net effect to the drift — keep hunting until the numbers tie.
3. Classify each change. Some are corrections that were right in substance but wrong in dating (a deleted duplicate). Some are errors to reverse outright. Some are real late-arriving items that belong in the current year.
4. Restore the closed year. Re-date current-year items to the current year. For substance-correct changes (that deleted duplicate), the preparer decides: leave the books changed and reconcile on the return side — possibly an amended return if material — or restore the original and post the correction currently. A genuinely late expense moves like this:

Account	Debit	Credit
Repairs & maintenance expense (current year)	3,100
Repairs & maintenance expense (closed year, via re-date)		3,100

In practice you re-date the original transaction rather than posting two lines across years; the entry shows the effect. Never post a bare debit or credit directly to retained earnings to force the old balance — it hides the transactions without fixing them.

5. Prove it. Re-run the prior-year balance sheet; it must now match the filed version line for line. Send the preparer the exception list and what you did with it.

How to prevent it

• Set the closing date — with a password — the day the return is filed, and advance it at every close. This one setting converts silent damage into a warning dialog and an exception report.
• Restrict who can override it to one person who understands what filed means.
• Archive a PDF and export of the year-end statements at filing time, so "what it used to say" is never a matter of memory.
• Check retained earnings against the filed return at every close. It is one line and ten seconds, and it belongs on the same monthly scan as the rest of /bookkeeping/cleanups-fixes/diagnosing-balance-sheet-problems. A ledger whose history holds still is the precondition for every other fix on this desk.