Textbook Notes (368,278)
Canada (161,760)
Business (2,391)
BU397 (49)
Chapter 21

Chapter 21 Notes.docx

4 Pages
Unlock Document

Allan Foerster

Accounting Changes Types of Accounting Changes - Change in Accounting Policy o Change in the choice of specific principles, rules, and practices applied by an entity in preparing and presenting financial statements o This includes changes in specific standards - Change in Accounting Estimate o Change occurs in circumstances on which a previous estimate was based or as the result of new information, more experience or subsequent developments - Correction of an error in prior period financial statements o Omissions from or mistakes in financial statements of prior periods caused by the misuse or failure to us reliable information that existed at the time financial statements were prepared o Can be intentional or an oversight Changes in Accounting Policy - Two levels of GAAP o Primary source of GAAP o Policies that are consistent with the primary sources of GAAP and are developed by exercising professional judgment and applying concepts - IFRS o Similar to GAAP o Primary source are the IFRS and guidance o When no source exists use professional judgment - In cases where GAAP specifically requires categorization of items and different policies to be chosen from o Once an appropriate method is chosen from the ones that are allowed, it must be applied consistently to each category - A change in an accounting policy is permitted only when the change o Is required by a primary source of GAAP o Effect of the change will produce more relevant and reliable information - It is not a change in policy if it results from an adoption of o A new policy that recognizes events that have occurred for the first time or that were previously immaterial  If it was immaterial previously but is now material, it justifies the change o A different policy necessitated by events or transactions clearly different in substance from those previously occurring  When a company does something for the first time ever and that requires some sort of accounting that obviously has never been done before by the company, it justifies the change Changes in Accounting Estimates - Future conditions and events and their effects cannot be known with certainty o Estimation require exercise of judgment - Use of reasonable estimates is essential to the accounting process and does not undermine the reliability of financial statements - Change is brought about by assessing the present status and future expectations associated with specific assets and liabilities - In cases where it is unclear whether a change in one of policy or an estimate o Its treated as an estimate Correction of an Error - Includes o Change from an accounting policy that is not acceptable to one that is o Mathematic mistakes o Omission due to oversight o Previous estimates were not prepared in good faith o Recognition of an error, o Misappropriation of assets - If an estimate was calculated incorrectly due to lack of expertise it is an error - If a careful estimate was made in a previous year which is later determined as incorrect it is a change in estimate Methods for accounting for these changes - Current Method o New accounting method or estimate’s cumulative effect on the financial statement at the beginning of the period is calculated o An adjustment is reported in current year’s income statement o PY’s FS aren’t restated o Seen as a “catch up” - Prospective o Previously reported results remain and no change is made to them
More Less

Related notes for BU397

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.