A client's previous two years of financial statements understated estimated warranty payable by $30,000 and $50,000 respectively, both immaterial amounts. This year, the auditors estimate that the accrual is understated by an additional $60,000. In this year's audit, $100,000 represents a material amount. Assuming that the entire understatement is to be recorded based on SEC SAB 108, the decrease in this year's income due to these understatements is:
A) $0.
B) $60,000.
C) $110,000.
D) $140,000.

Question

Quizplus · Accepted Answer

According to SEC SAB 108, both the current and prior period misstatements should be considered. The total understatement is $30,000 + $50,000 + $60,000 = $140,000, which is material and should be corrected.

A Client's Previous Two Years of Financial Statements Understated Estimated