Textbook Notes (367,824)
Canada (161,435)
MGAC02H3 (21)
Daga (10)
Chapter 21

Chapter 21 Notes

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Financial Accounting

Chapter 21 Accounting Changes and Error Analysis NotesChanges in Accounting Policies and Estimates and ErrorsTypes of Accounting Changesy accounting standards for ASPE and IFRS have established reporting frameworks that cover 3 types of accounting changes 1 a change in accounting policychanges in the choice of specific principles bases conventions rules and practices applied by an entity in preparing and presenting financial statements are all changes in accounting policies 2 a change in accounting estimatea change in an accounting estimate is an adjustment to the carrying amount of an asset or a liability or the amount of an assets periodic consumption and results from either an assessment of the present status of or the expected future benefits and obligations associated with an asset or liability 3 correction of a prior period errorprior period errors are omissions from or mistakes in the financial statements of one or more prior periods that are caused by the misuse of or failure to use reliable information that existed when those financial statements were completed and could reasonably have been found and used in their presentation and preparation Accounting Policies y under IFRS one of the following two situations is required for a change in an accounting policy to be acceptable 1 the change is required by a primary source of GAAP 2 a voluntary change results in the financial statements presenting reliable and more relevant information about the effects of the transactions events or conditions on the entitys financial position financial performance or cash flows y ASPE permits a third type of accounting policy change to be made without having to meet the reliable but more relevant test in the second situation above and allows the following voluntary changes in policy to be made 3 between or among alternative private enterprise GAAP methods of accounting and reporting for investments in subsidiary companies and in companies where the investor has significant influence or joint control for expenditures during the development phase on internally generated intangible assets for defined benefit plans for accounting for income taxes and for measuring the equity component of a financial instrument that has both a liability and equity component at 0 y it is clearly not a change in policy if either one of the following two situations is evident 1 different policy is applied to transactions events or conditions that are unlike in substance from those that previously occurred 2 different policy is applied to transactions events or conditions that either did not occur previously or that were immaterial Alternative Accounting Methods y three approaches have been suggested for reporting changes in the accounts 1 Retrospective Retrospective application also known as retroactive application requires applying a new accounting policy in the accounts as if the new method had always been used The cumulative effect of the change on the financial statements at
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