Why is changing from the cash basis to the accrual basis a correction of error?
The cash basis of accounting is considered non-GAAP, whereas, the accrual basis is GAAP and is required for financials statements for public companies. Therefore, if the company prepared their financial statements under the cash-basis, that would be considered an error. Since the company is going from non-GAAP to GAAP, the company must correct the error and restate their financial statements using the accrual basis method.
When a company corrects and error, they must record a prior period adjustment and restate the financial statements. This means that any prior period financial statements must be restated to be presented under the accrual basis.
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