U.S.GAAP and IFRS require firms to account for correction of errors, if material, by
A)restating net income of prior periods and adjusting the beginning balance in Retained Earnings for the current period.
B)restating net income of prior periods and adjusting the ending balance in Retained Earnings for the current period.
C)restating net income of the current period and adjusting the beginning balance in Retained Earnings for the current period.
D)restating net income of the current period and adjusting the ending balance in Retained Earnings for the current period.
E)restating net income of the current period, only.

Question

Quizplus · Accepted Answer

Both U.S. GAAP and IFRS require firms to restate prior period financial statements to correct errors that are material in nature. This includes restating the net income of prior periods and adjusting the beginning balance in Retained Earnings for the current period, to reflect the cumulative effect of the error. This ensures that the financial statements are accurate and reliable, and provide users of the statements with a true and fair view of the company's financial performance and position. Choice B, C, D, and E are not correct because they do not reflect both the restatement of prior period net income and the adjustment to the beginning Retained Earnings balance for the current period.

USGAAP and IFRS Require Firms to Account for Correction of Errors