Week 7 Discussion

Week 7 Discussion - that would be required for them to keep...

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As accountants we will be faced with multiple decisions that we will have to make, some will be easy and some will be more difficult. What we need to make sure that we always make the correct decision that is ethical and under all GAAP guidelines. “ APB 20, “Accounting Changes” (1971), generally required the cumulative effect of changes in accounting principle—from one GAAP to another—to be reflected in current earnings.” (Bloom, PhD; Fuglister, DBA, 2006) A change in accounting estimate, such as in a bad-debt allowance, a warranty liability, or the service life of an asset, is not an error, because these estimates were based on the best information available at the time. These changes will continue to be treated prospectively, as under APB 20. (Bloom, PhD; Fuglister, DBA, 2006) Managers would prefer to change an estimate than a principle because there is so much less work
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Unformatted text preview: that would be required for them to keep up with. Here are some easy examples of areas for which changes in accounting estimates often are needed: 1. Uncollectible receivables 2. Useful lives of depreciable or intangible assets 3. Residual values for depreciable assets 4. Warranty obligations 5. Quantities of mineral reserves to be depleted 6. Actuarial assumptions for pensions or other postemployment benefits 7. Number of periods benefited by deferred costs (Stice, Stice, and Skousen, 2007) References: Bloom, PhD; Fuglister, DBA, Robert; Jayne (March 2006). Accounting Changes and Error Corrections. Retrieved April 23, 2009, from www.nysscpa.org/cpajournal/2006/306/essentials/p44.htm Stice, J, Stice, E, & Skousen, K (2007). Intermediate Accounting 16e. Mason: South-Western....
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