Staff Accounting Bulletin (SAB) No. 108 articulates guidance on applying the dual approach to evaluating uncorrected misstatements.

Question:

Staff Accounting Bulletin (SAB) No. 108 articulates guidance on applying the dual approach to evaluating uncorrected misstatements.
Under the dual approach, a misstatement must be corrected if it is material (using guidelines established in SAB No. 99) under either the rollover method or the iron curtain method. Assume that a liability is overstated by $100 because a $20 misstatement occurred in each year of a five-year period ending in the current period. Also assume that materiality for the income statement is $50 and materiality for the is $75.
a. What is the current-year effect of the error under (a) the rollover method and (b) the iron curtain method?
b. What adjustment do you recommend for this year? Explain the rationale for your proposed adjustment.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...