Prospective/ Retrospective
In accounting, certain items are addressed prospectively, while others are handled retrospectively.
What is retrospectively? Any change in the method of operations, if applied from the earliest point in time (from the past) to the date of change, is referred to as retrospectively.
What is prospectively? A change from a certain point in time that is applicable only to future periods is referred to as prospectively.
To illustrate these concepts, let me narrate a school incident:
At school, a teacher announced an inspection of the students' notes. There was a usual errant student who decided to copy only the last 4 chapters out of the 25 that the teacher wanted to check. On the inspection day, the teacher asked about the first 21 topics. The errant student lied, claiming they were in an old notebook.
If the teacher, by chance, ignored this, it would be a prospective approach, as the student only had to worry about future notes. However, if the teacher asked to see the notes for the first 21 topics, the student would have no choice but to complete all the missing work, which represents a retrospective approach.
By CA L.Muralidharan and CPA L.Mukundan
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