F1.6 Accounting Changes and Error Corrections Flashcards
Change in acct. principle inseparable from effect of change in acct. est. be reported
As a component of income from continuing operations. Report overall effect as change in estimate. Reported prospectively as a component of income from continuing operations. /q4 change in estimate accounted for in period of change and future periods if change affects both (NOT prior periods or RE). / q16 whenever it is impossible to determine wether a change in acct. estimate or a change in acct. principle, change should be considered a change in estimate
Change from cash to accrual basis of acct. reported
Prior period adjustment resulting from the correction of an error. Cash basis for financial reporting is NOT GAAP, it is an error. Correction of an error from a prior period is reported as prior period adjustment to retained earnings. / q12 Prior period adjustment must be reported net of tax
Change from FIFO to weighted average method
Adjustment to beginning RE. / q19 cumulative effect of change determined as of Jan. 1, Year of change. RULE: Cumulative effect of a change in acct. principle equals the difference between RE at beginning of period of change and what RE would have been if the change was applied to all affected prior periods, assuming comparative FS are not presented. Beg. RE of earliest year presented is adjusted for cumulative effect of change. /q23 change to Y4 RE, use Y3 FIFO amount - Y3 WA = 5k decrease in retained earnings in Y4.
Failed to accrue warranty cost and change in depr. (straight line to accelerated)
Correction of failure to accrue warranty costs is correction of an error and a prior period adjustment. Change in depr. Is change in estimate, handled prospectively, used as of the beginning of year of change and should start with current book value of the underlying asset.
GAAP, co. not presenting comparative FS, correction of error in FS of prior period reported, net of tax
Current RE as adjustment of opening balance / q26 example
Change in warranty cost
Change in estimate, increase from 100 to 110 reported in income from continuing operations
Change from moving avg. inventory to FIFO, IFRS (calendar year basis), cum. Effect of change is reported as adjustment to beginning RE on BS on:
Jan. 1 of the prior year. IFRS, when entity records a change in accounting principle, entity must (at a min.) present 3 BS (end of current period, end of prior period, and beg. Of prior period) and 2 of each other FS (current period and prior period).
Change in reporting entity, reported
Retrospectively, including note disclosures, and application to all prior period financial statements presented. /q29 FS of all prior period should be restated where there is a change in entity such as: 1. changing companies in consolidated FS 2. Consolidated FS v. previous individual FS
IFRS, each of following is disclosure req. related to correction fo material prior period error except:
A description of internal controls put in place to prevent the occurrence of the error in future periods. IFRS disclosure req. includes nature of error, amount of correction at beg. Of earliest period presented, and impact of the correction on basic and diluted earnings per share of each period presented
Net Income after adj.
Correction of error of prior periods should be reported as adj. to beg. RE. Here, NI before adj. + unrealized loss of AFS + correct of error of prior period = NI after adj. / Unrealized losses or gains from change in market value of AFS reported as a component of other comprehensive income in shareholder’s equity. Unrealized gains and losses on debt investments held for TS and equity investments included in NI.
GAAP, is cum. Effect of inv. Pricing change on prior years earned reported on FS for 1. LIFO to WA and 2. WA to LIFO
- Yes; 2. No. 1. Changed to WA is not impracticable, cum. Effect is computed and change is handled retrospectively. 2. change to LIFO is impracticable to calculate. Change is accounted for prospectively.
Adj. beginning RE for deferred comp. 300 and 70 lower tax
Debit: Retained earnings 230 (300-70). Adjustment is net of tax.
Min. reporting req. for a co. preparing its first IFRS FS
Three statements of financial position. / IFRS entity’s 1st FS should include at least: 3 BS (stmts of financial position), 2 statements of comphrensive income, 2 separate IS, 2 CFs, 2 stmts of change in equity and related notes, including comparative information
