Change, Estimate, or Error?
Distinguish accounting principle changes, estimate changes, and error corrections.
PEE What three labels should you test before treating a changed number? Principle, estimate, error. Estimate change versus error correction The key question is what was known or knowable at the prior reporting date. Let's call it an estimate change so we do not have to reopen last year. Someone wants a softer label for a prior-period mistake. Your line If the prior number was wrong based on facts available then, we need to analyze it as an error before deciding treatment. Do not choose the label based on convenience or optics. It ties classification to cause, which is the…
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