SSNT_chap020_TS - Slide 1 Chapter 20 ACCOUNTING CHANGES AND...

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13 - 1 Slide 1 ACCOUNTING CHANGES AND ERROR CORRECTIONS Chapter 20 Lecturer: Dr. Au Po Shu
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13 - 2 Slide 2 Learning objectives 1. Differentiate among the three types of accounting changes and distinguish between the retrospective and prospective approaches to accounting for and reporting accounting changes. 2. Describe how changes in accounting principle typically are reported. 3. Explain how and why some changes in accounting principle are reported prospectively . 4. Explain how and why changes in estimates are reported prospectively 5. Describe the situations that constitute a change in reporting entity . 6. Understand and apply the four-step process of correcting and reporting errors . 7. Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting changes and error correction
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13 - 3 Slide 3 “Change” is the norm rather than unusual. …particularly when the …particularly when the US GAAP and IFRS US GAAP and IFRS are merging… are merging…
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13 - 4 Slide 4 Is accounting an exact & precise science? Professional judgment is Professional judgment is required to apply a set of required to apply a set of principles, concepts, and principles, concepts, and objectives to specific sets of objectives to specific sets of circumstances. circumstances.
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13 - 5 Slide 5 Accounting is about making choices... 1. 1. Use of Accelerated or straight-line Use of Accelerated or straight-line depreciation depreciation 2. 2. Is FIFO, LIFO, or average cost most appropriate to Is FIFO, LIFO, or average cost most appropriate to measure measure inventories inventories ? ? 3. 3. Would the completed contract or percentage-of- Would the completed contract or percentage-of- completion method best reflect the performance of completion method best reflect the performance of our our construction construction operations? operations? 4. 4. Should we adopt a new FASB Should we adopt a new FASB pronouncement pronouncement early early or wait until it’s mandatory? or wait until it’s mandatory? 5. 5. Should the company opt for Should the company opt for fair fair value value measurement measurement when accounting for investments? when accounting for investments?
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13 - 6 Slide 6 6 Accounting Changes Retrospective vs. Prospective
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13 - 7 Slide 7 Accounting Changes Type of Change Description Examples Change in Accounting Adopt a new FASB standard. Principle Change method of inventory costing. Change from FV method to equity method, or vice versa. Change from completed contract to percentage-of completion, or vice versa. Change in Accounting Revision of an estimate Change depreciation methods. Estimate because of new information Change estimate of useful life of or new experience depreciable asset. Change estimate of residual value of depreciable asset.
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