Accounting Changes.txt

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  1. ´╗┐Accounting Changes are Classified as what?
    • 1) changes in accounting estimate
    • 2) changes in accounting Principle
    • 3) Changes in accounting Entity
  2. What is not considered to be an accounting change?
    • An ERROR if its note one of the followings:
    • 1) changes in accounting estimate
    • 2) changes in accounting Principle
    • 3) Changes in accounting Entity
  3. How is an affect resulting from a change in accounting estimate handeled?
    The affect is shown on current and furture icnome from continuing operitions and not past.
  4. When does a change in accounting estimate occur?
    It occurs when it is determined that an estimate previously used by the company is incorrect.
  5. How is a change in accounting pricinple that are inseparable from a change in estimate handeled.
    becuase it is inseparable from a change in estimate then it should be trated as a change in estamate and not as a change in principle. Therefore, the effect is shown in the current period and future periods.
  6. If a change in estimate affects several future periods, how should the change be treated or handeled?
    The effect on income before extraodinary items, net income and related per share information for the current year should be discolsed in the notes to the financial satetments.
  7. When does a change in accounting principle occure?
    A change in principle occures when you go from one accounting principle to another principle. An Example whoudld be from oune inventory valuation method to another.
  8. When you change from GAAP principle to non GAAP principle or Non GAAP to GAAP what is this?
    This is an ERROR. If you are publicly traded you must use GAAP or IFRS. even creidtors will require you to use GAAP or IFRS

    • What are the rules for making a change in Accounting Principle?
    • An accounting pricinple may be changed only if required by GAAP/IFRS or if the alternative principle is preferable and more fairly present the information.
  9. For past transactions or events or Terminated transactions, can an accounting principle change be implamented?
    An accounting change should not be made for for a transaction that is nonrecurring transactions or past events that have been terminated.
  10. What are the three effects of a change in accounting principle?
    • 1) Direct Effect: Adjustments that woulld be necessary to restate the financial statments of prior periods.
    • 2) Indirect Effects: Differences in nondiscretionary items based on earnigns (e.g Bonuses) that would have occured if the new principle had been used in prior periods.
    • 3) Cumulative effect- the cumulative effect is dependent upon if comparative financial statments are presented or if they are not preseneted. For non comparative financials, then the effect is = to (beginning retained earning) - (what retained earnings would have been had the change been used the how time). However, if comparative financials are being presented, then the change = (Beginning retained earnings in the first period shown) - (what retained earnings would have been if the new principle had been applied to all prior periods)
  11. What is the general rule for reporting a change in accounting principle?
    • A change in accounting principle should be recognized by adjusting beginning retained earnings in the earlies period presented for the cumulative effect of the change and if prior periods financial satments are presented, they should be restated to account for the change and reflect the new principle being used.
    • (note the exceptions to this general rule is a change in deprecition that is inseprable from a change in estamate and going from from one method of inventory vauluation "to LIFO".
  12. What should happen if an accounting change is not considered material in the year of the chang but is resonable expected to become material in leter periods?
    The change should be fully discolosed in the year of the change.
  13. What is a change in accounting entity under GAAP and site examples?
    under GAAP a cchange in accounting entity occurs when the entity being reported on has changed composition. Examples include: consolidated or comined financial statements that are presented in place of statments of indavidual companies.
  14. Under IFRS what is considered a change in accounting entity?
    IFRS does not include the concept of a change in accouting entity.
  15. How should a change in entity be trated if comparative financial statments are presented?
    • 1) All privious financial statments that are presented allong with the current year financial statments should be restated to reflect the information for the new reproting entity.
    • 2) Full discosure of the cause and nature of the change should be made including the cahnge in income before extraordnary items, net icnome and retained earnigns.
  16. What is the process to correct an ERROR ?
    • 1) if comparative financials are presented then correct the information if the year is presented within the comparative financails. If the year is not presented within the comparative financials then adjust (net of tax) the openign retained earning of the earliest year presented.
    • 2) if comparative financials are not presented than the error adjustment (net of tax) should be made to the opening balance of retained earnings.
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Accounting Changes.txt
2012-11-04 23:01:24
FAR Becker Accounting Standards Changes

FAR Becker Ch 1 Accounting Standards Changes
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