If a company identifies an error in prior period financial statements, what should they do?
If errors are identified and they are material or cause the financial statements to be misleading, then the company should restate the financial statements and reissue them.
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How is a change in estimate accounted for in a company’s financial statements?
Changes in estimates, such as the estimated useful like for a tangible asset or the bad debt allowance percentage, are accounted for on a prospective basis. This means that the current and future financial statements must reflect the change, but the company does not need to change historical periods.
What does a retrospective change to the financial statements mean?
When there are accounting changes, a company can either approach those changes on a prospective or retrospective basis. The approach ultimately depends on the type of change. When a company prepares it financial statements, there are often historical periods presented next to the current period. If the accounting change requires retrospective treatment, then those historical […]