Intermediate Accounting (4)

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Identify the types of accounting changes.
Describe the accounting for changes in accounting principles. Understand how to account for retrospective accounting changes. Understand how to account for impracticable changes.
F I F T E E N T H
E D I T I O N
22-1
PREVIEW OF CHAPTER 22
Intermediate Accounting 15th Edition Kieso Weygandt Warfield
22-2
22
1.
2. 3. 4.
Accounting Changes and Error Analysis
22-5
Changes in Accounting Principle
Change from one accepted accor. Examples include:

Average cost to LIFO. Completed-contract to percentage-of-completion method.
Major disclosure requirements are as follows.
1. 2. Nature of the change in accounting principle. The method of applying the change, and:
a. A description of the prior period information that has been retrospectively adjusted, if any. b. The effect of the change on income from continuing operations, net income (or other appropriate captions of changes in net assets
5.
6. 7. 8. 9.
Describe the accounting for changes in estimates.
Identify changes in a reporting entity. Describe the accounting for correction of errors. Identify economic motives for changing accounting methods. Analyze the effect of errors.
Adoption of a new principle in recognition of events that have occurred for the first time or that were previously immaterial is not an accounting change.
Describe the accounting for changes in accounting principles. Understand how to account for retrospective accounting changes. Understand how to account for impracticable changes.
LO 3
22-15
Rationale - Users can then better compare results from one period to the next.
22-7
LO 2
22-8
LO 2
22
1.
2. 3. 4.
Accounting Changes and Error Analysis
LEARNING OBJECTIVES
5.
6. 7. 8. 9.
Describe the accounting for changes in estimates.
Identify changes in a reporting entity. Describe the accounting for correction of errors. Identify economic motives for changing accounting methods. Analyze the effect of errors.
After studying this chapter, you should be able to:
Identify the types of accounting changes.
Describe the accounting for changes in accounting principles. Understand how to account for retrospective accounting changes. Understand how to account for impracticable changes.
22-6
LO 2
Changes in Accounting Principle
Three approaches for reporting changes:
1) Currently.
2) Retrospectively.
3) Prospectively (in the future).
FASB requires use of the retrospective approach.
22
1.
2. 3. 4.
Accounting Changes and Error Analysis
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Identify the types of accounting changes.
22-11
LO 3
Changes in Accounting Principle
Illustration 22-1
22-12
LO 3
Changes in Accounting Principle
Data for Retrospective Change
Illustration 22-2
Journal entry beginning of 2014
22-9
Changes in Accounting Principle
Retrospective Accounting Change Approach
Company reporting the change
1) Adjusts its financial statements for each prior period presented to the same basis as the new accounting principle. 2) Adjusts the carrying amounts of assets and liabilities as of the beginning of the first year presented, plus the opening balance of retained earnings.
1. Change in Accounting Policy.
2. Changes in Accounting Estimate. 3. Change in Reporting Entity. Errors are not considered an accounting change.
22-4
LO 1
5.
6. 7. 8. 9.
Describe the accounting for changes in estimates.
Identify changes in a reporting entity. Describe the accounting for correction of errors. Identify economic motives for changing accounting methods. Analyze the effect of errors.
INTERMEDIATE
kieso weygandt warfield
team for success
Intermediat ACCOUNTING Intermediat e e Accounting Accounting
Prepared by Coby Harmon Prepared by Prepared by University of California, Santa Barbara Coby Harmon Harmon Westmont College SantaCoby University of California, Barbara University of California, Santa Barbara Westmont College
22-10
LO 3
Changes in Accounting Principle
Retrospective Accounting Change: Long-Term Contracts
Illustration: Denson Company has accounted for its income from long-term construction contracts using the completed-contract
method. In 2014, the company changed to the percentage-ofcompletion method. Management believes this approach provides
a more appropriate measure of the income earned. For tax purposes, the company uses the completed-contract method and plans to continue doing so in the future. (Assume a 40 percent enacted tax rate.)
or performance indicators), any other affected line item.
c. The cumulative effect of the change on retained earnings or other components of equity or net assets in the balance sheet as of the beginning of the earliest period presented.
Construction in Process Deferred Tax Liability Retained Earnings
220,000 88,000 132,000
LO 3
22-13
22-14
LO 3
Changes in Accounting Principle
Reporting a Change in Principle
22-3
Accounting Changes
Accounting Alternatives:


Diminish the comparability of financial information.
Obscure useful historical trend data.
Types of Accounting Changes: