Question

A company that reports changes retrospectively would:

A. report the cumulative effect in the current year's income statement as an irregular
item.
B. not change any prior-year financial statements.
C. make changes prospectively.
D. show any cumulative effect of the change as an adjustment to beginning retained
earnings of the earliest year presented.

Answer 1

A company that reports changes retrospectively should adjust the beginning retained earnings of the earliest year presented for the cumulative effect of the accounting change.

Step-by-step explanation:

The subject of the question is accounting principles related to how a company reports changes in accounting policy or estimates. When a company reports changes retrospectively, the correct answer is D: show any cumulative effect of the change as an adjustment to beginning retained earnings of the earliest year presented. In other words, the company should restate prior-period financial statements as if the new accounting principle had always been in place. The cumulative effect of the change up to the start of the earliest year presented in comparative financial statements is recognized as an adjustment to the opening balance of retained earnings of that year. This process enhances the comparability of financial statements across periods.