Financial Accounting Standards No. 16

In the mid-1970s, the American Institute of Certified Public Accountants (AICPA) Committee on SEC Regulations requested that the FASB consider the criteria for prior period adjustments, as those criteria were stated in APB Opinion No. 9, Reporting the Results of Operations, and provide further guidelines for the application of such criteria.1 APB Opinion No. 9 stated, among other things, that prior period adjustments were limited to the following:

those material adjustments which (a) can be specifically identified with and directly related to the business activities of particular prior periods, (b) are not attributable to economic events occurring subsequent to the date of the financial statements for the prior period, and (c) depend entirely on determinations of persons other than management and (d) were not susceptible of reasonable estimation prior to such determination.2

APB Opinion No. 9 stated that such "adjustments are rare in modern financial accounting."3

The AICPA request to the FASB was "prompted by Securities and Exchange Com

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is directly related to business activities of specific prior interim periods of the current fiscal year, and c) The amount of the adjustment or settlement could not be reasonably estimated prior to the current interim period but becomes reasonably estimable in the current interim period.7 Statement No. 16 also addressed adjustments for prior periods of a current fiscal year, when "an item of profit or loss occurs in other than the final interim period of the enterprise's fiscal year and all or a part of the item of profit and loss is an adjustment related to prior interim periods of the current fiscal year."8 In such instances, the FASB stated in Standard No. 16: a) The portion of the item that is directly related to business activities . . . during the current interim period, if any, shall be included in the determination of net income for that period. b) Prior interim periods of the current fiscal year shall be restated to include the portion of the item that is directly related to the business activities of the enterprise during each prior interim period in the determination of the new income for that period. c) The portion of the
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Approximate Word count = 1398
Approximate Pages = 6 (250 words per page)