Accounting Changes

Question 1

How are changes in accounting principle applied?

Answer 1

RETROSPECTIVE - prior periods adjusted:

• Retained Earnings adjusted
• Completed Contract to % Completion
• LIFO to FIFO

Question 2

Would a change from Completed Contract to % of Completion be a change in accounting principle or change of estimate? How would it be applied?

Answer 2

Change of Accounting Principle

Retrospectively

Question 3

Would a change from LIFO to FIFO be a change in accounting principle or change of estimate? How would it be applied?

Answer 3

Change in Accounting Principle

Retrospectively

Question 4

How is a change in accounting estimate applied?

Answer 4

Prospectively (going forward). NO backwards adjustments are made.

Question 5

Would a change from straight line depreciation to double declining balance be a change in principle or estimate? How would this be applied?

Answer 5

Change in Accounting Estimate

Prospectively

Question 6

How is a correction of an accounting error made?

Answer 6

Cumulative effect of error gets adjusted to the beginning balances of assets & liabilities in the EARLIEST period presented in the comparative statements. The correction of the error must be included in the FOOTNOTES.

Question 7

What are the requirements for a prior period adjustment?

Answer 7

Effect is Material.

Is identifiable in Prior Period if couldn’t be estimated in prior periods.

Question 8

How is a change from a non-GAAP accounting method to a GAAP method recorded?

Answer 8

It’s treated as a correction of an accounting error. Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements. Correction of the error must be included in the footnotes.

Question 9

How does an inventory error effect the financial statements?

Answer 9

Effect of Ending Inv = Effect on Net Income. If one is overstated, both are overstated. If one is understated, both are understated. Misstating inventory corrects itself after TWO periods.

Question 10

How is a change in entity recorded?

Answer 10

Retrospectively. All prior periods presented for comparative purposes must reflect the change Footnote disclosures must be made. Changing to Consolidated Statements.