Final answer:
Long-term liabilities may need correction as a prior period adjustment when errors are found in financial statements. Material errors must be adjusted to maintain the accuracy of the financial statements like the balance sheet and ensure reliable comparisons over different periods.
Step-by-step explanation:
When financial statements contain errors, the liabilities that may need correction as a prior period adjustment are typically long-term liabilities. Since financial statements, like the balance sheet, list both current and long-term assets and liabilities, errors discovered in a subsequent period that relate to the previous period must be adjusted to reflect an accurate picture of the financial situation. Contingent liabilities may become material and thus would also need to be considered if the event has occurred and the amount can be reasonably estimated.
Prior period adjustments are usually required for errors that are material in nature, meaning they are significant enough to affect decision-making by users of the financial statements. These corrections are made before the issuance of the current period's statements so that all comparisons between periods are consistent and reliable.