Final answer:
The statement is True. The modified retrospective approach in accounting involves implementing a change in the current period without adjusting for the cumulative effect on prior periods.
Step-by-step explanation:
The statement is True. The modified retrospective approach in accounting involves implementing a change in the current period without adjusting for the cumulative effect on prior periods. This approach is commonly used when there is a change in accounting policy or estimate. Under the modified retrospective approach, the change is applied prospectively, meaning it is only implemented from the current period onward.
For example, if a company changes its method of inventory valuation from First-in-First-Out (FIFO) to Last-in-First-Out (LIFO), using the modified retrospective approach would mean that only the current period financial statements would reflect the change, while the financial statements for prior periods would still use the FIFO method. The cumulative effect of the change is not accounted for in the prior periods.
This approach is different from the full retrospective approach, where accounting changes are applied retroactively to all prior periods, including adjusting the opening balances of previous financial statements.