12-Changes & Errors - Chapter 21...

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    Chapter 21 Chapter 21     Accounting Changes and Error Analysis Accounting Changes and Error Analysis
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2 Accounting Changes Accounting Changes and Error Analysis and Error Analysis Changes in Accounting Changes in Accounting Policies and Estimates, Policies and Estimates, and Errors and Errors Types of accounting changes •Alternative accounting methods Accounting standards Retrospective application – change in accounting policy Retrospective restatement – correction of error •Prospective application •Summary of accounting changes IFRS and Private IFRS and Private Enterprise GAAP Enterprise GAAP Comparison Comparison Comparison of IFRS and private enterprise GAAP Adoption of IFRS Adoption of accounting standards for private enterprises (ASPE) •Looking ahead Perspectives Perspectives Motivations for change •Interpreting accounting changes
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3 Types of Accounting Changes Types of Accounting Changes 1. Change in Accounting Policy Change in the choice of “specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements” 1. Change in Accounting Estimate Adjustment based on change in circumstances on which a previous estimate was based or as the result of new information, more experience or subsequent developments
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4 Types of Accounting Changes  Types of Accounting Changes  (continued) (continued) 3. Correction of an error in prior period financial statements Omissions from or mistakes in financial statements of prior periods caused by the misuse or failure to use reliable information that existed at the time financial statements were prepared They may be intentional or an oversight
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5 Changes in Accounting Policy Changes in Accounting Policy Under IFRS, change in an accounting policy is permitted only when the change: 1. Is required by a primary source of GAAP , or 2. Results in portraying reliable and more relevant information about effects of transactions, events or conditions
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6 Changes in Accounting Policy Changes in Accounting Policy Under accounting standards for private enterprises, there is a third type of policy change permitted (voluntary): 3. Between or among allowed PE GAAP accounting options for: Investments in subsidiaries, and investments with significant influence or joint controls Development phase expenditures on internally generated assets Defined benefit plans Income taxes Measuring equity component of certain financial instruments
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7 Changes in Accounting Policy Changes in Accounting Policy Does not result from adoption of a: 1. Different policy necessitated by events or transactions clearly different in substance from those previously occurring 2. New policy that recognizes events that have occurred for the first time or that were previously immaterial New things to report requiring  new methods   changes in  policy
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8 Changes in Accounting Policy
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This note was uploaded on 10/26/2011 for the course ACCT 3410 taught by Professor Jobs during the Spring '11 term at Kwantlen Polytechnic University.

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12-Changes & Errors - Chapter 21...

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