F2-M2 Accounting changes and Error Corrections Flashcards

1
Q

How is a change is estimate accounted for

A

It is done prospectively, only effecting CY and subsequent periods. It is not a change in accounting, and will not effect RE.

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2
Q

How is a change in accounting accounted for?

A

Shown net of tax on RE statement.

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3
Q

How is a change in entity accounting for?

A

If the change is resulting from changing companies in consolidated FS than all of the prior periods should be restated

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4
Q

What happens when the change is principle is inseparable from change in estimate?

A

It is accounted for prospectively as a component of NI

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5
Q

What happens when comparative FS are presented when changes in principles happened?

A

Effect of a change in principle is presented net of tax as an adj to beginning RE based on the principle that was changed.

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6
Q

How is a change from cash to accrual recognized?

A

It is recognized as a change in accounting error since cash basis is not accepted by gaap, which is treated retrospectively.

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7
Q

.

A
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8
Q

How is a change in error reported on comparative FS?

A

The change is done through all years such that the cumulative effect of the change will have the proper amount stated in the final year. NO OFFSETTING ADJ TO OCI OR OTHER ACCOUNTS.

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9
Q

What is the effect of understated inventory?

A

COGS is overstated, resulting in RE being overstated. When inventory is getting back it increases RE net of tax.

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10
Q

Formula for period adjustment

A

Correct accounting - incorrect accounting is the period adj. Than subtract the tax expense.

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11
Q

How are corrections of deprecation reported?

A

if it is increases, accum dep for the gross amount

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12
Q
A
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13
Q

What happens when deprecation expense is understated

A

The amount has to get reduced by the amount of understatement

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14
Q

How are acquisitions accounted for

A

Retrospect as if it happened in the year 1

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15
Q

How are error corrections treated as

A

Retrospective: NON GAAP to GAAP is an error.

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16
Q

How to we account to LIFO ?

A

Prospective

17
Q

When converting cash to accrual how do we treat collections of credit sales

A

reduction in accrual income to prevent double counting