Correction of Error

Question 1

What are the three criteria of a prior period adjustment?

Answer 1

1. The effect of the adjustment is material to continuing operations.
2. The adjustment can be identified with a prior period.
3. The amount of the adjustment could not be estimated in prior periods.

Question 2

How is a change in business entity treated?

Answer 2

It is an accounting change that requires restatement of financial statements.