BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Solutions

Chapter
Section
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
3 views

Describe the three types of accounting changes.

To determine

Explain the three types of accounting changes.

Explanation

Accounting changes: When a company requires to sacrifice the consistent accounting methods and procedures, to enhance the usefulness and relevance of the accounting information, those changes are referred to as accounting changes. Such inevitable accounting changes decrease the comparability and consistency of accounting information. The reasons for accounting changes could be new methods introduced by FASB (Financial Accounting Standards Board), changes in accounting principles, and changes in accounting estimates.

The following are the three types of accounting changes:

  • Change in an accounting principle: This change occurs when a company decides to change from an accounting principle to another, like change from LIFO to FIFO. A change in accounting principle effects the values that impact the figures of previous and current years, thus, impairs the consistency and comparability. Hence, the changes in accounting principle should be adjusted with a retrospective effect to impact the previous financial statements, to increase the comparability and the consistency of the values between the previous and current accounting periods.
  • Change in an accounting estimate: This change occurs when a company decides to change the estimates based on the additional information or future events. A change in accounting estimate results out of new experiences and effects the values of current and future period only, but not the previous periods. Hence, the changes in accounting estimates should be accounted for prospectively.
  • Change in a reporting entity: A change in reporting entity occurs due to changes in ownership and operating control due to acquisition. Hence, the changes in reporting entity should be adjusted with a retrospective effect to represent the parent and subsidiary companies as one entity.

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and ma...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Why are some economists against a target of zero inflation?

Principles of Macroeconomics (MindTap Course List)

Find all the answers to your study problems with bartleby.
Textbook solutions plus Q&A. Get As ASAP arrow_forward