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Unformatted text preview: 08:35 22-1 Bob Anderson- UCSB Accounting Changes and Error Analysis Chapter 22 22-2 Bob Anderson- UCSB MATERIALITY!!!! Everything ever must be material to matter. Consequently, remember that for this whole class, we assume the items we discuss are material to the Company. 22-3 Bob Anderson- UCSB Accounting Changes - APBO No. 20 Classifications: a. Change in Accounting Principle --- GAAP to GAAP change NEW literature: FASB Statement No.154. b. Change in Accounting Estimate --- Example = useful lives of fixed assets c. Change in Reporting Entity --- Example = changing specific subsidiaries in consolidated financial statements. 22-4 Bob Anderson- UCSB Change in Principle Change from one GAAP to another GAAP A change is NOT considered to result when a new principle is adopt in recognition of events that have occurred for the first time or that were were previously immaterial . Change from non GAAP to GAAP is not an accounting changes but rather considered a Correction of an Error NOTE: When it is difficult to determine if it is a change in estimate or a change in principle (such as change in depreciation method), GAAP requires that it be treated as a change in estimate (Current & Forward). 08:35 22-5 Bob Anderson- UCSB Enterprise must demonstrate that the new GAAP is preferable to the existing one. Three POSSIBLE Approaches for Reporting Changes: Retroactive (adjust prior years) Currently (adjust current year) Prospective (adjust current and future years) Change in Principle 22-6 Bob Anderson- UCSB WHICH DO WE USE? For years and years, we used the Cumulative effect method, but that recently changed (Due to IAS Convergence. GAAP requires the retrospective approach, which is WHAT YOU LEARNED IN 136A!!!!! Report each year presented as if the new principle had always been in place For the very first year presented, make sure to adjust the balance sheet accounts (including retained earnings) for the cumulative effect up to that point!...
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This note was uploaded on 12/25/2011 for the course ECON 136C taught by Professor Anderson during the Fall '08 term at UCSB.
- Fall '08