Accounting Changes & Error Corrections

Question 1

What summary is a required note to the financial statements?

Answer 1

The summary of significant accounting policies is a required note to the financial statements that simply describes an entity’s accounting choices when more than one method is permitted(eg. depreciation) and account classification (eg. investment)

Question 2

What is one important factor in the disclosure of special purpose framework in F/S?

Answer 2

In other to avoid misleading F/S users, a F/S prepared in accordance with a special purpose framework must have a title that clearly indicates the framework used in a non-GAAP framework. eg. instead of an income statement, a cash-basis F/S might include a statement of revenues collected and expenses paid.

Question 3

What is one note that is always included in GAAP-based financial statements?

Answer 3

One note that is always included in GAAP-based financial statements is the summary of significant accounting policies. This note simply identifies the accounting principles and methods used by the entity for items that have more than one acceptable approach under GAAP (eg, short-term investment classification criteria).

Question 4

How do you correct an accounting error from prior period?

Answer 4

To correct a prior-period accounting error, all prior -period income-related accounts affected by the error can be restated directly if comparative financial statements(F/S) are issued. If comparative F/S are not issued, the effects on income are reflected in adjustments to the beginning balance of retained earnings or accumulated other comprehensive income.