Question

Which of the following describes the modified retrospective approach to implementing a change in accounting principle?

The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings.
The new standard is applied to all periods presented in the financial statements.
The new standard is applied only to current period and all future periods.
The new standard is applied only to all future periods and not the current or previous periods.

Answer 1

A. The modified retrospective approach to implementing a change in accounting principle involves applying the new standard only to the current period and all future periods, and showing the cumulative effects of prior periods as an adjustment to retained earnings. Therefore, the financial statements will include information about prior periods presented in accordance with the new standard.