Correction_of_error-CTDI - 1 2nd Flr GF Partners Bldg 139...

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2 nd Flr, GF Partners Bldg, 139 H.V. dela Costa, Salcedo Village, Makati City AUDITING PROBLEMS Accounting for Changes and Correction of Errors        Prof. L.O. Aristorenas                                                                                                                                                             __     Definition of Terms Accounting policies - specific principles, bases, conventions, rules and  practices adopted by an enterprise in preparing and presenting the financial statements. Fundamental errors - are   errors   discovered   in   the   current   period   with   such  significance, that the financial statements of one or more prior periods can no longer be  considered to have been reliable at the date of their issue. Reasons why Accounting Changes Occur : 1. The accounting profession may mandate that a new accounting principle is to be used. 2. Changing economic conditions 3. Changes in technology and in operations 4. New experience or new information may prompt companies to change its estimate of  revenues  or expenses. TYPES OF ACCOUNTING CHANGES 1. Change in Accounting Principles This is a change from one generally accepted accounting principle to another generally  accepted accounting principle.  Adoption of a new principle in recognition of events that have  occurred for the 1st time is not a change in accounting principle.   There is no change in  accounting principle when the depreciation method adopted for a newly acquired asset is  different from the method or methods used for previously recorded assets of similar class. A change  from a  principle  that is  not  generally  accepted  to one   that is  generally  accepted is considered to be an error correction than a change in accounting principle. Accounting Procedure: Benchmark treatment A   change   in   accounting   policy/principle   should   be   applied   retroactively   unless   the  amount of any resulting adjustment that relates to prior periods is not reasonably determinable.  Any resulting adjustment should be reported as an adjustment to the opening balance of the  retained earnings.  Comparative information should be restated unless it is impracticable to do  so. 2.  Change in Accounting Estimate This is a change that occur as a result of new information or acquisition of additional  experience.  Changes in estimates are viewed as normal recurring corrections and adjustments  or the natural result of the accounting process.  Retroactive treatment is prohibited.  1
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  Accounting Procedure: a.     Report current and future financial statements on the new basis.
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Correction_of_error-CTDI - 1 2nd Flr GF Partners Bldg 139...

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