Accounting Changes Flashcards
How are changes in accounting principle applied?
Retrospective Application:
Prior Periods adjusted
Retained Earnings adjusted
Completed Contract to % Completion
Ex: LIFO to FIFO
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.
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statementsCorrection of the error must be included 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.
Restate to reflect information for the new entity.
All prior periods presented for comparative purposes must reflect the changeFootnote disclosures must be madeChanging to Consolidated Statements
Would a change from FIFO to LIFO be a change in accounting principle or a change of estimate? How would this change be applied?
Applied prospectively
Change in accounting principle inseparable from accounting estimate
Change in accounting principle should be recognized by?
Adjusting Beginning retained earnings in the earliest period presented for the cumulative effect of change.
What accounting principle change does the IFRS not include?
Change in Accounting Entity
Under IFRS if it is impracticable to determine either the period specific effect or the cumulative effect of an error the entity is required to?
This is a impracticality exemption
Restate information prospectively from the earliest date that is practicable
GAAP does not have this exemption for error corrections
