When a material error is discovered in prior financial statements:
A) prior financial statements are restated to their correct amounts.
B) assets and liabilities in the current period are restated to their appropriate levels.
C) prior income effects are adjusted to the current period's beginning balance of retained earnings.
D) all of these answer choices are correct.

Question

Quizplus · Accepted Answer

When a material error is discovered in prior financial statements, the appropriate action is to restate those financial statements to their correct amounts. This could include adjusting income effects to the current period's beginning balance of retained earnings, but that would not necessarily be the first step to take. Additionally, assets and liabilities in the current period would not be restated unless there was a separate error discovered in the current period's financial statements.

When a Material Error Is Discovered in Prior Financial Statements