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Yaeger FAR > 9C Accounting Changes > Flashcards

9C Accounting Changes Flashcards

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0
Q

Type of Accounting Change: change in estimate

Definition

A

Change of estimated financial statement amount based on

New information or experience

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1
Q

Type of Accounting Change: Change in Accounting Principle

Definition

A

Change form use of one generally accepted accounting

Principle to another generally accepted accounting principle

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2
Q

Type of Accounting Change: change in reporting entity

Definition

A

Change that results in financial statements representing a

Different entity

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3
Q

Change in accounting principle:

Financial statement treatment

A

Retrospective application

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4
Q

Change in estimate:

Financial statement treatment

A

Prospective

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5
Q

Change in reporting entity:

Financial statement treatment

A

Retrospective application

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6
Q

Change in accounting principle:

Retrospective application on financial statements

A

Report cumulative effect of change in carrying amounts of assets
And liabilities as beginning of 1st period presented

With offsetting adjustment to opening balance of retained earnings
For that period

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7
Q

For retrospective application of a change in an accounting principle, financial statements for each period are adjusted to reflect…

A

Period specific effects of the change for direct effects

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8
Q

Change in estimate:

Prospective treatment for financial statements

A

Report in period of change and future periods

Don’t adjust financial statements of previous periods

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9
Q

Change in reporting entity:

Retrospective application of financial statements

A

Report financial statements of all periods to show financial info
For the new reporting entity for those periods

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10
Q

Change in accounting principle

Financial statement disclosures:

Disclose the nature and…

A

Reason for change

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11
Q

Change in accounting principle

Financial statement disclosures:

Disclose the method of…

A

Applying the change

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12
Q

Change in accounting principle

Financial statement disclosures:

Disclose the description of…

A

Prior period info that is retrospectively adjusted

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13
Q

Change in accounting principle

Financial statement disclosures:

Disclose the effect of change on…

A

Income from continuing operations, net income and other

Financial statement line item

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14
Q

Change in accounting principle

Financial statement disclosures:

Disclose the per share amounts for…

A

Current period and adjusted periods

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15
Q

Change in accounting principle

Financial statement disclosures:

Disclose the description of the…

A

Indirect effects of the change and related per share amounts

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16
Q

Change in estimate

Financial statement disclosures: 3

A

1 effect on income form continuing operations

2 net income

3 related per share amounts (if change affects several future periods)

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17
Q

Change in reporting entity

Financial statement disclosures:

How it affects…5

A

1 type of change and reasons for change
2 related effects on income before extraordinary items
3 net income
4 other comprehensive income
5 related per share effects on EPS for all periods presented

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18
Q

Correction of an error:

Correction of an error in previously issued financial statements requires…

A

A prior period adjustment by restating financial statements

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19
Q

What are the 3 kinds of accounting changes?

A

1 changes in accounting principle

2 changes in accounting estimate

3 changes in reporting entity

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20
Q

There is no change in the definition and treatment of…

A

Corrections of errors

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21
Q

Corrections of errors are not…

A

Accounting changes

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22
Q

Corrections of errors are done as…

A

Prior period adjustments to the beginning balance of retained
Earnings, net of tax effect

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23
Q

The term “restatements” is reserved only for describing…

A

Corrections of errors to financial statements

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24
Comparative financial statements for publicly traded companies: Number of years for income statement, cashflow statement and balance sheet?
3 years for comparative statements for statement of cashflows and income Statement 2 years for comparative statements for balance sheet
25
Steps in dealing with changes in accounting principle: Just use the new accounting principle in...
The current accounting period
26
Steps in dealing with changes in accounting principle: Take the cumulative effect and adjust...
The carrying values of assets and liabilities as of the beginning Of the first period presented
27
Cumulative effect (change in accounting principle)
Difference between old and new accounting principle since Company first started business until beginning of first period Presented
28
Changes in accounting principle, taking the cumulative effect and adjusting the carrying values of assets and liabilities: The offsetting debit or credit is made to...
The beginning balance of retained earnings (net of tax) for | First period presented
29
Changes in accounting principle, taking the cumulative effect and adjusting the carrying values of assets and liabilities: Only direct effects are...
Part of the cumulative effect
30
Changes in accounting principle, taking the cumulative effect and adjusting the carrying values of assets and liabilities: Indirect effects are reported in...
The period the change is made
31
Steps in dealing with changes in accounting principle: Presentation of prior periods in comparative financial statements: The financial statements of each prior period presented are adjusted for...
Period specific effects
32
Retrospective treatments means that you can apply...
The new accounting principle to prior periods' financial statements As the new accounting principle has been used in those periods
33
During change of an accounting principle, if the cumulative effect can be calculated, but the period specific effects can only be determined for some of the accounting periods presented (not all of them), the financial statements of earth prior period presented are... 2) and adjust that prior period's...
Adjusted for period specific effects in earliest prior period Possible 2) beginning balances for assets, liabilities and retained earnings
34
Change in accounting principle, if the cumulative effect can't be calculated, then...
Apply the new accounting principle prospectively
35
Prospective application of an accounting principle is the easiest for...
Managment, so FASB made it tough to qualify
36
To qualify for prospective implementation of a change in an accounting principle entity must meet...
At least 1 of the 3 criteria of impracticability
37
3 criteria of impractibility
1 after making every reasonable effort to apply new principle Retrospectively but you're unable to do so 2 there are assumptions about management's intentions that can't Be independently substantiated 3 significant estimates are required and you can't obtain objective Info to make estimates
38
Cindy's example of: there are assumptions about management's intentions that can't be independently substantiated
You couldn't read management's mind
39
Cindy's example of: significant estimates are required and you can't obtain objective info to make estimates
You are really bad at guessing
40
Classic example of impracticability
Converting from FIFO to LIFO because of those pesky LIFO layers
41
Changes in accounting principles: No distinction is made between special and...
Non special changes All changes in accounting principles are treated in the same manner
42
Changes in depreciation, amortization and depletion methods are treated as...
Changes in accounting estimates
43
Examples of common changes in accounting principles 2
1 change in inventory flow method (FIFO, LIFO, Weighted-Avg./ Moving-Avg) 2 change in construction accounting method (percentage of Completion, completed contract)
44
Change in accounting principle: Direct effects (of the cumulative effect)
Effects to the assets, liabilities, DITA, DITL, and impairment losses As result of the new accounting principle
45
Change in accounting principle: Indirect effects (of the cumulative effect)
Effects to current and future cash flows as result of new accounting Principle Ex. Royalties and profit sharing
46
2 steps in dealing with changes in accounting estimate
1 just use new accounting estimate in current accounting period 2 do not adjust financial statements of prior periods presented
47
What are changes in accounting estimates besides changes in depreciation, amortization and depletion methods? 2 other examples
1 change in percentages for BDX or Warranty expense 2 changes in salvage value or estimated useful life for Depreciable assets
48
2 steps in dealing with changes in reporting entity
1 just use new reporting entity in current accounting period 2 apply the new reporting entity retrospectively to the financial Statements of all prior periods presented
49
Retrospective treatment for changes in reporting entity: What did it used to be called in the old accounting standard?
Retroactive treatment
50
2 examples of changes in reporting entity
1 leaving out a subsidiary when it's being controlled by bankruptcy Court, but including it once it emerges from bankruptcy 2 leaving out foreign subsidiary when it's being controlled by A foreign gov, but including it when there's a change in Foreign gov's policy
51
Straight line depreciation expense equation
Depreciation expense = | (Historical cost - salvage value)/useful life
52
In bankruptcy court, entity is controlled by...
Bankruptcy trustee
53
A change in depreciation method is a change in method that is not...
Not distinguishable from a change in estimate and is accounted For as a change in an estimate
54
Change in an accounting estimate is reported on a...
Prospective basis in current and future years
55
A change in depreciation method is no longer given...
Cumulative effect treatment on the income statement
56
Because a change in depreciation method is no longer given cumulative effect treatment on the income statement, there are...
No deferred income tax liability effects
57
No net of tax calculation is appropriate for...
Prospective calculations in an accounting change
58
An accounting change that is a change in reporting entity is given...
Retrospective application to the earliest period presented, if Practicable
59
Calculations for double declining balance
(1/useful life x 2) x (historical cost - acc. Depr.)
60
IFRS Change in accounting principle: The rules for accounting changes are similar to...
US GAAP
61
IFRS Change in accounting principle: Accounting changes may occur only when...2
1 change is required by IFRS Or 2 there's a voluntary change in accounting methods
62
IFRS Change in accounting principle: In the case of a new IFRS pronouncement, the transition rules in...
The new IFRS statement should be followed
63
IFRS Change in accounting principle: A voluntary change in accounting method may only be made if it provides...
Reliable and relevant information about the transactions, | Entity's financial position, performance or cash flows
64
IFRS Change in accounting principle: A voluntary change in accounting method is given...
Retrospective application by applying the policy as if the new policy had always been applied
65
IFRS Change in accounting principle: Retrospective application provides that opening balance of equity is... 2) and that other amounts are disclosed for...
Adjusted for the earliest period presented 2) each period as if the new accounting policy had always been applied
66
IFRS Change in accounting principle: If it is impracticable to determine the effects of the change then the change may be...
Applied on a prospective basis
67
IFRS Change in accounting principle: Disclosures include...4 things
1 the title of IFRS requiring the change 2 nature of the change 3 amount of adjustments to each financial statement line item 4 effects on EPS
68
IFRS change in accounting estimate: Change in accounting estimate occurs due to...
Uncertainties in measuring items on financial statements
69
IFRS change in accounting estimate: Changes in estimates include changes in estimates for...5
``` 1 bad debts 2 inventory obsolescence 3 FV financial of assets and liabilities 4 useful life of depreciable asset 5 warranty obligations ```
70
IFRS change in accounting estimate: A change in estimate is accounted for on...
A prospective basis in period of change (current and future periods)
71
A change in method of accounting for long term contracts requires...
Retrospective application to earliest year practicable
72
Notes to the financial statements to describe a change in accounting principle must include: Nature and reason for...
Change and explanation as to why new method is preferable
73
Notes to the financial statements to describe a change in accounting principle must include: The method of...
Applying the change
74
Notes to the financial statements to describe a change in accounting principle must include: A description of the...
Prior period information that is retrospectively adjusted
75
Notes to the financial statements to describe a change in accounting principle must include: The effect of the change on...4
1 income from continuing operations 2 net income 3 other affected financial statement line item 4 any affected per share amounts for current period and all Periods adjusted retrospectively
76
Notes to the financial statements to describe a change in accounting principle must include: The cumulative effect of the...
Change on retained earnings or other components of equity or Net assets as of the earliest period presented
77
Notes to the financial statements to describe a change in accounting principle must include: If retrospective application is impracticable...
The reason, and description of how change was reported
78
Notes to the financial statements to describe a change in accounting principle must include: A description of indirect...
Effects of change, including amounts recognized in current period And related per share amounts
79
Notes to the financial statements to describe a change in accounting principle must include: Unless impracticable, the amounts of...
The indirect effects of the change and the per share amounts | For each prior period presented
80
Change in accounting principle: Disclosures are also required for...
Interim periods
81
In the year of the change to the new accounting principle, interim financial state,nets should disclose...3 things
1 the effect of the change on income from continuing operations 2 net income 3 related per share amounts for the post change interim periods
82
Change in accounting principle: Once the change in method is disclosed, financial statements in subsequent periods...
Don't need to repeat the disclosure
83
The effect of a change in accounting principle which is inseparable from the effect of a change in accounting estimate should be accounted for as...
A change in accounting estimate
84
Changes in estimate should be accounted for in the period of...
Change and affected future periods as a component of income | From operations
85
Financial statements are only restated for...
Changes due to error
86
If the cumulative effect of applying an accounting change can be determined, but the period specific effects on all periods can't be determined, the cumulative effect of the change should be applied to...
The carrying value of assets and liabilities at the beginning of The earliest period that can be determined

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