FAR Accounting Changes & Error

Question 1

How should a company present the effect of change in accounting principles in its current comparative financial statement?

Answer 1

If comparative F/S are presented, the cumulative effect of a change in accounting principle is presented NET OF TAX as an adjustment to BEGINNING retained earnings in the statement of changes in stockholders’ equity

Question 2

What is the min reporting requirement of a company that is preparing its first IFRS F/S?

Answer 2

Per IFRS 1, (1st-time adoption of IFRS), an entity’s 1st F/S should include at least:

• 3 B/S
• 2 statement of comprehensive income
• 2 separate income statement
• 2 statement of C/F
• 2 statements of Changes in Equity, and
• related notes, including comparative information

Question 3

What is the cumulative effect of a change in accounting principle?

Answer 3

This equals the difference b/tw retained earnings (RE) at the beginning of period of the change and what RE would have been if the change was applied to all affected prior periods, assuming comparative F/S are not presented. Beginning RE of the earliest year presented is adjusted for the cumulative effect of the change.

Question 4

How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?

Answer 4

When the change in accounting principle is inseparable from the change in accounting estimate, the reporting treatment for the overall effect is as a CHANGE IN ESTIMATE. Thus the effect is reported prospectively as a component of income from continuing operations.

Question 5

How should the effect of a change in accounting estimate be reported?

Answer 5

A change in accounting estimate affects only the current and subsequent periods (not the prior periods and not RE)

Question 6

What is the IFRS minimum comparative requirement for a change in accounting principle?

Answer 6

Under IFRS when a company records a change in accounting principle, the entity must (at minimum) present 03 B/S (end of current period, end of prior period, and beginning of prior period) and 2 of each other F/S (current period and prior period). The cumulative effect adjustment is shown as an adjustment to beginning RE on the B/S for the beginning of the prior period.

Question 7

What are the disclosure requirements related to the correction of a material prior period error?

Answer 7

1. The Nature of the error
2. The impact of the correction on basic and diluted EPS for each period presented
3. The amount of the correction at the beginning of the earliest period presented.

Question 8

Under US GAAP how is the correction of an error reported

Answer 8

Correction of an error from a prior period is reported as prior period adjustment to RE net of tax