SEC to provide guidance on error correction.

Interesting article in the WSJ today about whether companies should be required to fix errors of previous financial statements. There is no real controversy that material errors should be fixed, the question is whether the error is material today. What do we mean here, well specifically the issue relates to self-correcting errors. Think about inventory, errors in inventory are self-correcting so a $50 error in 2002 causes a $50 error in the opposite direction in 2003, so if the error was discovered in 2004 it would be considered $0 under the "Roll-over Method", however under the "iron curtain approach" we have a $50 error in 2002 and a $50 error in 2003, and if $50 is material both years would need to be corrected. Most companies use the roll over method to analyze errors, which results in fewer error corrections, the SEC should provide guidance this summer.