F1 - Accounting Changes

Question 1

Name three types of accounting changes.

Answer 1

• Change in acounting principle
• Change in accounting estimate
• Change in accounting entity

Question 2

How is a change in accounting principle reported?

Answer 2

• Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented.
• Prior-period financial statements are restated, if presented.

Question 3

What are the special changes in an accounting principle?

How are special changes in accounting principle reported?

Answer 3

• A change in LIFO from another method of inventory pricing under U.S. GAAP
• Any other change in which a cumulative effect adjustment is considered impractical to calculate

Special changes are reported prospectively (like a change in estimate).

Question 4

How is a change in accounting estimate reported?

Answer 4

• Prospectively
• The effect is shown in the current and/or future preiods that are affected by the change
• Financial statements are not restated

Question 5

Under U.S. GAAP, how is a change in the accounting entity reported?

Answer 5

All current and prior preiod financial statements presented are restated.

Question 6

How are error corrections reported?

Answer 6

Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated.