1. Differentiate between use of the retrospective approach and the prospective approach of accounting for a change in accounting principle.
2. Your company just discovered a material error in the financial statements. The error goes back six years, affecting both the income statement and the balance sheet each year. How should the company correct this error? Should all financial statements be revised, or should the company stick with its normal reporting of two years for the balance sheet and three years for the income statement and statement of stockholders equity? Be sure to explain how a prior period adjustment works, if applicable.