SGchp22 - Chap ter 2 2 Accounting Changes ,thewaysin ,...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chap ter 2 2 A ccounting Changes This chapter describes the different types of accounting changes, the ways in  which they affect reported results, and the accounting approach used to adjust the changes. Changes in accounting policy may be caused by a change in the company’s  economic environment, changes in ownership or involuntary changes resulting  from new AcSB recommendations. At each financial date accounting estimates are reviewed and often adjusted. Lastly, accounting changes arise when a company  discovers it has made an accounting error in previous periods. Financial statement restatement is an important part of financial statement  analysis, and will be discussed in Chapter 23. 1. TYPES OF ACCOUNTING CHANGES There are three types of accounting changes: • Changes in accounting policy.  —voluntary, at the option of management or at the request of the user  —involuntary, to comply with new  CICA Handbook  recommendations • Changes in accounting estimates. • Corrections of an error in previous years’ financial statements. Changes in Policy  change in accounting policy  is a change in the way a company accounts for a  particular type of transaction or event, or for the resulting asset or liability. Accounting Changes 247
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Management may make a  voluntary  change in accounting policy in response to  changes in the reporting enterprise’s circumstances, such as the following: 248 Chapter 22
Image of page 2
• A change in reporting objectives, that may arise when there is a change in  ownership of a company. • A change in ways of doing business, such as a shift to higher-risk business  strategies that make the prediction of future outcomes more difficult and  less reliable. • A desire to conform to common or emerging industry practice. • A change in the predictability of future events due to changes in the  external environment, such as an increased risk of obsolescence of capital  assets.   One of the most common reasons for changing one or more accounting policies is   a change in reporting objectives. For example, when the ownership of a company changes, the priority of objectives often changes, or important new objectives suddenly arise. Reporting objectives may also change to satisfy the requirements of an important  lender or other user. New  CICA Handbook  recommendations may require a company that is constrained by GAAP to change its accounting either because (1) a previously accepted  method become unacceptable, or (b) a new approach is recommended that was  not previously used in practice.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern