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ACC 302 PPt 20 - 1 Accounting Changes and Error Corrections...

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1 Accounting  Accounting  Changes and  Changes and  Error  Error  Corrections Corrections
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2 Understand the three different types of accounting changes that have been identified by accounting standard setters. Recognize the difference between a change in accounting estimate and a change in accounting principle, and know how a change in accounting estimate is reflected in the financial statements. Learning Objectives
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3 Determine if a change in accounting principle requires a cumulative adjustment relating to its effect or a restatement of prior-periods’ financial statements, and be able to compute the necessary adjustment. Determine when a change in reporting entity has occurred, and understand the disclosure requirements associated with this change. Learning Objectives
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4 Recognize the various type of errors that can occur in the accounting process, understand when errors counterbalance, and be able to correct errors when necessary. Describe the differences between the U.S. approach to accounting changes and error corrections and the international standard found in IAS 8. Learning Objectives
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5 Why Are Accounting Changes Made? A company, as a result of experience or new information may change its estimates of revenues or expenses. Due to changes in economic conditions, companies may need to change methods of accounting to more clearly reflect the current economic situation. Accounting standard-setting bodies may require the use of a new accounting method or principle.
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6 Why Are Accounting Changes Made? The acquisition or divestiture of companies may cause a change in the reporting entity. Management may be pressured to report profitable performance. Making accounting changes can often result in higher net income, thereby reflecting favorably on management.
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7 Effect of SFAS No. 106 Company One-Time Charge (in millions) IBM $2,263 Gen. Electric 1,799 Bell Atlantic 1,550 PepsiCo 357 The Coca-Cola Company 7 Tiffany & Co. 6
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