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theyokesonme
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Joined: 11 Aug 2011
Location: United States
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Posts: 7
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| Posted: 09 May 2012 at 18:24 | IP Logged
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how is this treated?
I know correction from prior periods require adjustment to
RE BB net of taxes.
The books are unclear on this....
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divyagovil1
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Location: India
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| Posted: 14 May 2012 at 01:07 | IP Logged
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The correction of an error must be handled as a prior
period adjustment to the earliest period
reported in the financial statements. Some of the types
of errors that might occur are as follows:
- Change from an unacceptable accounting principle to an
acceptable one.
- Mathematical errors.
- Changes in estimates that were not prepared in good
faith.
- Failure to accrue or defer expenses or revenues at the
end of a period.
- Misclassification of costs as expenses and vice versa.
APPROACHES TO REPORTING ACCOUNTING CHANGES
1. Retrospective approach
The retroactive approach provides consistency and
comparability between periods and across entities.
Comparative financial statements are recast to reflect
the changes. The cumulative effect (net of tax) of the
change is reported as a prior period adjustment in the
earliest period reported. The accounting records are
adjusted to reflect the cumulative effect (net of the
change) as of the beginning of the current period. The
change and its effects on income and balance sheet
amounts is disclosed in the notes to the financial
statements.
2. Prospective approach
The prospective approach is used when it is impractical
to use the retrospective approach.
__________________
Divya - CO State
Passed using Becker Review :
FAR - 04/11/09 - 94
BEC - 05/30/09 - 86
REG - 08/29/09 - 95
AUD - 11/21/09 - 92
Ethics - 2011
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divyagovil1
Major Contributor
Joined: 30 Jan 2009
Location: India
Online Status: Offline
Posts: 1456
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| Posted: 14 May 2012 at 01:11 | IP Logged
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refer following link for some good examples on how to
report the prior period adjustments in RE Beginning
balance:
http://accounting.utep.edu/sglandon/c20/c20a.pdf
__________________
Divya - CO State
Passed using Becker Review :
FAR - 04/11/09 - 94
BEC - 05/30/09 - 86
REG - 08/29/09 - 95
AUD - 11/21/09 - 92
Ethics - 2011
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Topic: correction of error in current period
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