Accounting Changes Flashcards
How are changes in accounting principle applied?
Retrospective. Adjust beginning retained earnings of earliest year presented. Prior period financial statements are restated, if presented.
Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?How would it be applied?
A change of principle. Applied retrospectively.
Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate? How would this change be applied?
A change in accounting principle. Applied retrospectively.
How is a change in accounting estimate applied?
A change in accounting estimate is applied prospectively (going forward). No backwards adjustment is made.
Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate? How would this change be applied?
Change in depreciation method would be a change in accounting estimate. It is applied prospectively.
How is a correction of an accounting error made?
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements. The correction of the error must be included in the footnotes.
What are the requirements for a prior period adjustment?
Effect is Material Is identifiable in Prior Period Couldn’t be estimated in Prior Periods
How is a change from a non-GAAP accounting method to a GAAP method recorded?
It is treated as a correction of an accounting error. Reported as prior period adjustment to retained earnings and all comparative financial statements presented are restated. Correction of the error must be disclosed in the footnotes
How does an inventory error effect the financial statements?
Effect on Ending Inventory : Effect on Net Income If one is overstated- both overstated. If one is understated- both understated. Misstating inventory corrects itself after TWO periods.
How is a change in entity recorded?
Applied retrospectively. All current and prior period financier statements are restated.
What are the special changes in an accounting principle?
Change to LIFO. Any other change in which a cumulative effect adjustment is considered impractical to calculate. Special changes are reported prospectively (like a change in estimate)
The term “International Financial Reporting Standards” includes what standards?
International Accounting Standards (IAS) International Financial Reporting Standards (IFRS) IFRIC Interpretations SIC Interpretations
