DQW5 - What is a change in accounting principle? How do you...

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Unformatted text preview: What is a change in accounting principle? How do you determine if a change in principle should be reported retroactively, currently, or prospectively? How do these changes affect the financial statements? Changes in principle when companies switch from one acceptable accounting method to another. Accounting changes can be accounted for: Retroactively (prior years restated), Currently (cumulative effect reported currently), Prospectively (only current and future years affected). In general, changes in accounting principles are recorded and reported by the current approach. The cumulative income effect (net of the tax effect) is reported as a separate item of income between extraordinary items and net income. The effect of the change on certain key income numbers should be reported for the current period and on a pro forma (as if) basis for the financial statements of all prior periods included in the report. The nature of and justification for the change, as well as the effect on current earnings, should be...
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This note was uploaded on 08/14/2011 for the course ACCT 423 taught by Professor R.becksted during the Spring '09 term at University of Phoenix.

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