The Wall Street Journal reported in early 2012 that CitiBank acknowledge a series of errors in accounting for the investment in the firm by the U.S. government. These errors overstated the company’s quarterly earnings in 2008 and 2009, and were corrected with an adjusting entry in the fourth quarter of 2009 that contributed to a large reported loss for the company. A stock analyst following Citi lamented that he was very concerned about these errors.
REQUIRED:
Discuss how CitiBank’s accounting errors relate to the concepts of the fiscal period assumption, the consistency principle, and the matching principle. Further, discuss why the analyst is so concerned.