Change - A"Change in an accounting principle is changing...

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A "Change in an accounting principle" is changing from one generally accepted accounting principle to another generally accepted accounting principle, or changing the method of application of a particular principle. A change should only be made when the new principle is preferable over the former. When the FASB issues a new pronouncement that expresses preference for a particular principle, justification for a change is demonstrated; otherwise the burden of justification is on the entity. To report higher net income is not justification! CHANGE IN AN ACCOUNTING PRINCIPLE (General Rule) : Use the Current or Catch-up Approach by: a. Reporting current results using the new basis. I.e., use the new method to determine income, balance sheet, etc. b. Reporting the cumulative effect of the adjustment in the current income statement between the captions "extraordinary items" and "net income". c. Presenting prior period financial statements as previously stated. d. Presenting pro-forma (as if) data on any item affected, net income and earning per share for all prior periods presented. e. Presenting pro-forma data for the current period income statement, i.e., without the cumulative effect of
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This note was uploaded on 04/03/2012 for the course ACCT 272 taught by Professor Mensah during the Fall '08 term at Rutgers.

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Change - A"Change in an accounting principle is changing...

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