Chapter 21, Problem 21.1Q

Are accounting changes permitted in financial statements?

To determine

Whether accounting changes permitted in financial statements.

Answer to Problem 21.1Q

Accounting changes are allowed in financial statements of company only up to a certain extent and must depict true and accurate financial position of the company.

Explanation of Solution

Accounting Change:

Accounting change includes the change in accounting method, accounting principle or standard. It is the change in the method of calculation of profit and loss statement of company. For example: A company changes its method from effective interest rate method to straight line method this is called the Accounting change.

• Accounting change is permitted but only up to a certain extent and these changes must be justified to the management of company.
• These changes must depict true and accurate financial position of the company.
• These changes should be disclosed to the users, investors, authorities so that they can compare and analyze the financial statement of company.
• Also, Changes are in limit not reoccurring every time.

Conclusion

Hence, accounting change ispermitted in financial statements.