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What are the 3 types of accounting changes?
- Change in acct'g principle
- Change in Acct'g estimate
- change in reporting entity
Are errors considered an accounting change?
Give an example of a change in accounting principle
- Average cost to LIFO
- completed-contract to % of completion
What approach is taken for a change in accounting principle?
A retrospective approach. Prior financial statements must be adjusted so that they can be compared better
Give an example of a change in estimate
- uncollectible revenues
- useful lives of assets
- salvage value of assets
- change in depreciation methods
How are changes in estimate approached?
On a prospective basis. Changes in estimates are accounted for in the current period and any future periods
What is an example of a change in reporting entity?
- consolidated statements instead of individual company statements
- changing companies included in financial statements
- changing subsidiary companies in a consolidation
How are changes in reporting entity approached?
Changes in reporting entity are accounted for retrospectively. The financial statements of all prior periods presented must reflect the change.
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