Answer to Question #307088 in Accounting for Milan

Question

What is a prior period adjustment?

What is a correction of an error?

What does retrospective mean?

What does prospective mean?

What does restating prior periods mean?

Thank you.

Answer 1

Prior period adjustment relates to going back and fixing past financial statements that had been misstated because of a reporting error. It is the correction of an accounting error that occurred in the past and was already reported on a prior year's financial statements.

Correction of an error refers to rectifying an error in the recognition, presentation, measurement or disclosure of financial statements due to mathematical mistakes, oversight of facts, or mistakes in applying GAAP when preparing the financial statements.

Retrospective means implementation of new accounting policies for a transaction or another circumstance as if it had been implemented. Thus, it affects presentation of financial statements for previous periods in applying changes in accounting policies and estimates.

Prospective means the implementation of new accounting policies for a transaction or another circumstance after new accounting policies or estimations have been implemented.

Restating prior periods means adjusting carrying amounts of any affected assets or liabilities as of the first accounting period presented, with an offset to the beginning retained earnings balance in that same period to account for prior period adjustment.