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Hello,
I feel like a complete idiot but I don’t understand these concepts when it comes to accounting changes and error corrections.
I found the below explanation on another feed, but I’m still not sure what the difference is between retrospective and restatement. Also, I am doing the becker review simulation F1 and I am fine with deciding what the accounting change is, but I cannot figure out what the impact is. For example it says “Jones books a receivable in Year 1 and cash is collected in Year 2, but the company does not book revenue until year 3”. The answer is error correction and the impact to year 2 is beginning retained earnings only. Why wouldn’t this affect the current period earnings also? That same simulation it has “the company calculates depreciation of $250,000 in Year 2, but realizes after the books are closed that it should have been $225,000” the correct response is error correction and the impact to year 2 is current earnings only. Why wouldn’t this also affect the Retained earnings?
Change in Estimate = prospective = current and future periods
Change in Principle = retroactive = 1) adjust RE for years not presented 2) restate FS for periods presented
Change in Entity = retroactive = restate FS for periods presented only [CAN SOMEONE CONFIRM PLEASE?]Error = restate = 1) adjust RE for the years not presented and 2) restate FS for the periods presented
So basically the treatment is the same, just the terminology is slightly different for changes = retroactive, for errors = restatement.
Meghan Giannini
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