CFA Practice Question

CFA Practice Question

Due to new information becoming available, a company changes the application of its accounting method. When making adjustments for past years, which of the following statements is CORRECT?
A. These are prior period adjustments and are reported below the line in the current year's income statement and include the effect on prior years.
B. These are unusual and infrequent items and are required to be disclosed separately as a pre-tax item.
C. These are only disclosed in footnotes.
Explanation: Changes due to misapplication of accounting methods in the past are reported below the line in the year of the change, along with their impact on prior years' earnings. Some errors, however, can be charged directly to retained earnings (but in most cases they are reported in the current year's income statement).

User Contributed Comments 6

User Comment
IBBY84 why gain or losses are not included in the CFO !!!
capitalpirate LOC: Accounting changes generally do not have cash flow consequences!
jpducros "below the line"....but below which line ?
mindi below the net income line
alexchav Yeah, it does not affect CFO, but the answer relates to NI.
jameshj Is this the same as changes in accounting regulation and restating all prior years?
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