Accounting Corrections

Question 1

Correction of Error

Answer 1

• Reported in year of correction by restating all prior years affected by the error
  
  • Cumulative effect of the error on periods prior to those presented must be reflected in the carrying amounts of the assets and liabilities as the beginning of the earliest year presented in the current period’s financial report
  • Offsetting amount of this cumulative effect must be reported as an adjustment to the opening balance of retained earnings of the earliest year presented in the current period’s financial report
  • Ex - Changing from non GAAP to GAAP - cash to accrual basis of accounting
    Restatement = retrospective

Question 2

Change in Accounting Principle

Answer 2

• Voluntary changes in accounting principle should be recognized using the retrospective approach
  Cumulative effect is reported as an adjustment of beginning of year retained earnings of the earliest year presented

Question 3

IFRS -

Answer 3

• Correction of Error
  ○ Required Disclosures:
  ○ Nature of the error
  ○ Correction to specific line items and earnings per share
  ○ Amount of the correction at the beginning of the earliest period presented
  
  • IFRS does not address the reporting of the indirect effects of changes in accounting principles
  • Allows and exception of reporting the impact of both changes in accounting principles and correction of errors
    ○ Change in accounting principle or errors is applied retrospectively, except to the extent that it is impracticable to determine the effects of the change
    In that case, the principle or error change is applied from the earliest date practicable

Question 4

Change of Accounting Estimate

Answer 4

• Prospective basis, current year and future years

No retroactive application, an explanation and justification must be provided in the notes

Question 5

FASB ASC 250-10-45-18

Answer 5

Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred, the change should be considered a change in estimate

Question 6

FASB ASC 250-10-45-5

Answer 6

• Exception to a change in accounting principle
  
  • FASB issues a new pronouncement and mandates that in the pronouncement that a change in accounting principle made to comply with that pronouncement should be made by including the cumulative effect in net income for the year of change
    And not in retained earnings

Question 7

Change in Reporting entity

Answer 7

• All prior year’s financial statements must be reported as if the change happened before the financial statements were presented
  
  • Retrospective approach
    Cumulative effect of change is an adjustment to beginning retained earnings