Accounting Changes and Error Corrections

Question 1

Three types of accounting changes

Answer 1

Change in accounting principle
Change in accounting estimate
Change in the reporting entity

Question 2

Change in accounting principle (retrospective application)

Answer 2

1. Adopts a generally accepted principle different from one previously used
2. Changes the method of applying generally accepted principle
3. Changes to a generally accepted principle when the principle previously used is no longer generally accepted

Question 3

Cumulative effect of retrospective application

Answer 3

requires carrying amounts of assets, liabilities, and retained earnings at the beginning of the first period reported to be adjusted

Question 4

Change in Accounting estimate (Prospective application)

Answer 4

Results from new information.
Effects must be accounted for in the period of change and any future periods affected

Question 5

A change in estimate inseparable from a change in principle is accounted for as a

Answer 5

change in estimate (prospective application)

Question 6

Change in reporting entity

Answer 6

Results in statements that are effectively those of a different entity.
Most occur when
Consolidated or combined statements replace those of individual entities
Consolidated statements include different subsidiaries
Combined statements include different entities

Question 7

Error Correction

Answer 7

mathematical mistake
mistake in the application of GAAP
oversight or misuse of facts existing when the statements were prepared