Final answer:
No. Companies should use retrospective application even if they cannot determine its effects to ensure consistency and comparability in financial reporting. The correct option is: 2) No
Step-by-step explanation:
Retrospective application is the practice of applying new accounting standards or principles retrospectively to previous financial statements. It is important for companies to use retrospective application even if they cannot determine its effects because it allows for consistency and comparability in financial reporting. By applying the new standards to previous financial statements, companies can provide a more accurate and transparent representation of their financial position and performance over time.
For example, if a company implements a new accounting standard that changes the way it recognizes revenue, it should apply this standard to all previous financial statements. This ensures that the company's revenue recognition practices are consistent across different reporting periods and allows stakeholders to compare financial statements from different years.
While it may be challenging to determine the exact effects of retrospective application, it is still important for companies to adopt this practice to enhance the quality and reliability of their financial reporting.