Chapter 1 Section 6: Accounting Changes and Error Corrections

Question 1

What are the three types of accounting changes?
How are they each handled?
Which does IFRS recognize?

Answer 1

Estimate - prospective
Principle - retrospective
Entity - retrospective
IFRS only recognizes estimate and principle.

Question 2

Give a few examples of changes in estimate

Answer 2

Life of fixed assets
Write-down of inventory
Litigation
Changes in principal that are inseparable from an estimate, like going from installment to immediate recognition

Question 3

What is going from non-GAAP to GAAP classified as?

Answer 3

Correcting an error - NOT a principle

Question 4

How do you report a change in principle?

Answer 4

Adjust the retained earnings for the earliest set of financial statements presented. Report NET of tax.

Question 5

How do you report a change in principle for IFRS?

Answer 5

Restate at least three balance sheets and two of the rest

Question 6

What are the exceptions to the change in principle reporting rule?
How do you handle them?

Answer 6

Going TO LIFO
Any change in depreciation method
Handle prospectively

Question 7

How do you report a change in entity?

Answer 7

Restate the financial statements presented.

Question 8

How do you report correction of an error?

Answer 8

Adjust the retained earnings for the earliest set of financial statements presented. If no comparative statements are presented, show as an adjustment to the opening balance of retained earnings, net of tax.