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CHAPTER 21 - Handout - Mervat Saleh CA CHAPTER 21...

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Mervat Saleh, CA 1 CHAPTER 21 ACCOUNTING CHANGES AND ERROR ANALYSIS I. Types of Accounting Changes 1. Change in accounting policy 2. Change in accounting estimate 3. Correction of a prior period error 1. Three approaches for reporting such changes: a. Retrospectively : b. Currently : c. Prospectively : 2. Changes in Accounting Policy 1. Changes in the choice of specific principles or rules in preparing and presenting F/S Example : 2. The initial adoption of a new accounting standard. Example : 3. Under IFRS, a voluntary change 4. Retrospective-effect (with full restatement) : In general, changes in accounting principle are treated as follows: 1. The cumulative effect of the change, net of tax , is reported as a restatement of opening retained earnings of the earliest period presented for comparative purposes. (Journal entries are required) 2. Opening retained earnings for each period presented is adjusted to show the amount originally reported and an adjustment for the cumulative effect.
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