Accounting Changes & Error Corrections

Question 1

change from cash-basis to accrual-basis is considered

Answer 1

ion of error

As a prior-period adjustment (net of tax), by adjusting the beginning balance of retained earnings

Question 2

Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred

Answer 2

the change should be considered a change in estimate

bc of conservatism

Question 3

A change in reporting entity is recognized

Answer 3

retrospectively by restating the financial statements for all periods presented as if the change had already occurred as of the beginning of the earliest period presented.

Question 4

change in reporting entity

Answer 4

two or more previously separate entities are combined into one entity for reporting purposes, or when there is a change in the mix of entities being reported.

Retrospectively, including note disclosures, and application to all prior period financial statements presented

Question 5

switched from the completed-contract method to the percentage-of-completion method

Answer 5

should classify the transaction as a change in accounting principle and make retrospective adjustments

A change in the method of accounting for long-term construction contracts is a change in accounting principle and is given retrospective treatment