How do firms record prior-period adjustments?

A. Prior-period adjustments are reported as adjustments to net income after taxes. If comparative statements are presented and the error is determined within the three-year income statement reporting period, the prior statements can not be restated.

B. Prior-period adjustments are reported as adjustments to opening retained earnings, after taxes. The income and/or expenses of the current period can be changed by economic events and transactions that occurred in prior accounting periods.

C. Prior-period adjustments are reported as adjustments to net income, net of tax. If comparative statements are presented and the error is determined within the three-year income statement reporting period, the prior statements can be retroactively restated. The assets of the current period can also be changed by economic events and transactions that occurred in prior accounting periods.

D. Prior-period adjustments are reported as adjustments to opening retained earnings, net of tax. If comparative statements are presented and the error is determined within the three-year income statement reporting period, the prior statements can be retroactively restated. In all cases, the income of the current period cannot be changed by economic events and transactions that occurred in prior accounting periods.