A new accounting bulletin from the Securities and Exchange Commission addresses how prior year misstatements should be considered when quantifying a current year's misstatement.
Currently, there have been two common approaches used to quantify such errors. Either the error can be quantified as the amount by which the current year income statement is misstated, or the error can be quantified as the cumulative amount by which the current year's balance sheet is misstated. Problems can result from either method.
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