M6 Accounting Changes and Error Corrections

Question 1

How do you handle a change in accounting principle?

Answer 1

Restate prior periods; change retrospectively and only if required by GAAP (adjust beg RE net of tax). Only exception is (1.) if you switch to LIFO or (2.) change your method of depreciation, those are considered change in estimate.

Question 2

How do you handle a change in accounting estimate?

Answer 2

Do not restate financials; change prospectively ( do not touch prior year financials).

Question 3

How do you handle a change in entity?

Answer 3

Restate prior periods; change retrospectively; restate 3 years of I/S and 2 years of B/S.

Question 4

How do you handle a correction of an accounting error?

Answer 4

If in current year, current year. If error pertains to a previous year, correct beg RE (net of tax) as a prior period adjustment. If comparative financials are shown, correct prior period. If a prior period is not shown, you correct beg RE.