Accounting errors and policy changes are handled retrospectively, with an adjustment to opening Retained Earnings to correct for the effects of these, while changes in accounting estimates are handled prospectively.

Question

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Accounting errors and policy changes are corrected retrospectively by adjusting the opening balance of Retained Earnings to reflect the effects of the changes. In contrast, changes in accounting estimates are handled prospectively, which means that they are applied to the current and future accounting periods but not to the past.

Accounting Errors and Policy Changes Are Handled Retrospectively, with an Adjustment