16 Accounting Changes and Error Corrections

16 Accounting Changes and Error Corrections - 16...

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Accounting Changes and Error  Accounting Changes and Error  Corrections Corrections Accountancy 301 Spring 2011 Flora Zhou 16
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Today Today ’s agenda ’s agenda • Case discussion: Thomas Industries • Accounting for accounting changes and  error corrections – What are accounting changes and errors – How to account for accounting changes and  errors – The usefulness of accounting estimates
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Accounting changes and errors Accounting changes and errors     SFAS 154 SFAS 154 Accounting changes : Changes in Accounting Principle Changes in Accounting Estimates Changes in Reporting Entity Accounting errors Errors in Financial Statements
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Changes in accounting principle Changes in accounting principle • A change in principle involves a change  from one generally accepted principle to  another. • A change in principle does not result from  the adoption of a new accounting principle. • A change to a generally accepted principle  (from an incorrect principle) is a correction  of an error.
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Changes in accounting estimate Changes in accounting estimate To prepare financial statements, companies must  estimate the effects of future conditions and events.  Changes in accounting estimate refer to revision of  an estimate because of new information or new  experience  Examples of accounting estimates – Uncollectible receivables. – Useful lives and salvage values of assets. – Periods benefited by deferred costs. – Liabilities for warranty costs  – *Changes in depreciation methods.
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Changes in a reporting entity • A change that results in financial statements are  those of a different reporting entity.  • Examples of a change in reporting entity are: • Presenting consolidated statements instead of  individual companies. • Changing specific subsidiaries in a consolidated group
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.

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