Accounting Changes & Error Corrections

Question 1

Change in Accounting Estimate

Answer 1

Prospective - change is useful lives or estimated warranty costs

Question 2

Change in Accounting Principle

Answer 2

Retrospective - Change from LIFO to FIFO

Question 3

Error Corrections

Answer 3

Retrospective - any error in prior financial statements

Question 4

When applying accounting principles retrospectively

Answer 4

Go back to the earliest period presented & counts as an adjustment to retained earnings

Question 5

When applying corrections of errors

Answer 5

This counts as a prior period adjustment and includes any income tax expense

Question 6

What is prospective information?

Answer 6

Any financial information about the future