Question: When preparing the current year's financial statements, you discover that inventory was materially overstated for each of the previous six years. The proper response would

When preparing the current year's financial statements, you discover that inventory was materially overstated for each of the previous six years.

The proper response would be to:

Multiple Choice

  • adjust the financials going forward using the prospective approach.

  • ignore the error in hopes that no one will find out about it.

  • adjust beginning retained earnings using the modified retrospective approach.

  • restate prior financial statements using the retrospective approach.

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