Chapter-23-Accounting-Changes-and-Error-Analysis23章会计变更和误差分析-PPT课件

1、 Chapter 23: Accounting Changes and Error Analysis Intermediate Accounting, 10th EditionKieso, Weygandt, and WarfieldPrepared byKrishnan Ranganathan, Angelo State University,San Angelo, Texas7/20/20221Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Types of Accounting ChangesAPB Opin

2、ion No 20 limits the flexibility in accounting treatments for similar situationsThe types of accounting changes are:Changes in Accounting PrincipleChanges in Accounting EstimatesChanges in Reporting EntityErrors in Financial Statements7/20/20222Intermediate Accounting, 10th Edition, Chapter 23 (Kies

3、o et al.)Changes in Accounting PrincipleA changes in principle involves a change from one generally accepted principle to anotherA change in principle does not result from the adoption of a new accounting principleA change to a generally accepted principle (from an incorrect principle) is a correcti

4、on of an error7/20/20223Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Changes in Accounting PrincipleChanges in accounting principle are classified into: Cumulative-effect type of accounting change Retroactive-effect type of accounting change Change to the LIFO method of inventory

5、7/20/20224Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Cumulative-Effect Type of Accounting ChangeThe catch up method should be used to account for these changesFinancial statements for prior periods are not restatedFor all prior periods, the following items are shown on an as-if

6、basis (as if the new principle had been applied): income before extraordinary items net income7/20/20225Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Cumulative-Effect Type of Accounting ChangeThe adjusting entry is effective as of the beginning of the yearPro forma information is

7、shown only as supplementary informationSuch information may be reported: in the income statement in a separate schedule in the notes to the financial statements7/20/20226Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Cumulative Effect: ExampleXYZ company changes from the sum-of-the-

8、years digits method to the straight line method of depreciation.The depreciation amounts are:Year SYD ST.LINE2000$15,000$8,0002019$14,000$8,000The companys tax rate is 40%Record the change as of the beginning of 20197/20/20227Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Cumulative

9、 Effect: ExampleYearSYDSL Diff Tax Effect2000$15,000$8,000 $7,000 $2,8002019$14,000$8,000 $6,000 $2,400 - $13,000$5,200 -Tax liability increases by $5,200Tax effect is the difference times the tax rate7/20/20228Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Cumulative Effect: Exampl

10、eJournal Entry: Accumulated Depreciation $13,000 Deferred Tax Asset $5,200 Cumulative Effect of Change in Principle $7,800The debit to accumulated depreciation restores the account balance on a straight line basisThe credit to Cumulative Effect is the income effect (net of tax effect)7/20/20229Inter

11、mediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Income Statement PresentationThe following information must be presented in whole dollar amounts and as per share amounts:Income before Extraordinary Itemand Cumulative Effect of Change:$ XXXExtraordinary Item (Net of Tax):$ XXCumulative Eff

12、ect on Prior Yearsof Retroactive Application:$ XXNet Income:$ XX7/20/202210Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Retroactive-Effect Type of Accounting ChangeThe cumulative effect of the new method at the beginning of the period is determined Prior period statements are reca

13、st based on the new principleAny cumulative effect of prior periods is adjusted to the beginning retained earnings balance7/20/202211Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Retroactive-Effect Type of Accounting ChangeThe five situations requiring restatement of all prior peri

14、od statements are: A change from the LIFO inventory method to another method A change in the method of accounting for long term construction type contracts A change from or to the full cost method in extractive industries Issue of financials to obtain first time financing A pronouncement recommendin

15、g retroactive adjustment7/20/202212Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Income Statement PresentationRetained Earnings account is shown as follows:Balance at beginning of year:$ XXXAdjustment for the CumulativeEffect on Prior Years:$ XXBalance at beginning (as adjusted):$

16、XXNet Income:$ XXXBalance at end of year:$ XXX7/20/202213Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Reporting a Change in EntityChanges in estimates are accounted for on a prospective basis Such changes are viewed as normal, recurrent adjustmentsWhen uncertainty exists as to whe

17、ther a change in principle or a change in estimate has occurred: the change should be treated as a change in estimateEstimates that are later determined to be incorrect should be corrected as changes in estimates Examples of changes in estimates involve: inventory obsolescence; salvage values of ass

18、ets7/20/202214Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Reporting a Change in EntityAn accounting change may result in a different reporting entityFinancial statements are then restated for all prior periods presentedExamples of a change in reporting entity are: consolidated st

19、atements in lieu of individual financials changes in subsidiaries in a consolidated group accounting for pooling of interests a change in method for accounting for subsidiaries and investments7/20/202215Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Reporting the Correction of an Er

20、rorCorrections are treated as prior period adjustments to retained earnings for the earliest period being reportedExamples of accounting errors are: A change from an accounting principle that is not generally accepted to one that is accepted Mathematical errors Changes in estimates that were not pre

21、pared in good faith A failure to properly accrue or defer expenses or revenues A misapplication or omission of relevant facts 7/20/202216Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)When is a Change in Accounting Principle Appropriate?Changes are appropriate when the new principle

22、 is preferable to the existing accounting principleThe new principle should result in improved financial reportingA change is considered preferable if a FASB standard: creates a new accounting principle, or expresses preference for a new principle, or rejects a specific accounting principle7/20/2022

23、17Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Motivations for ChangeManagers and others may have a self interest in adoptingprinciples or standards: Companies may want to be less politically visible to avoid regulation; A companys capital structure may affect its selection of acc

24、ounting standards; Managers may select accounting standards to maximize their performance-related bonuses; Companies have an incentive to manage or smooth earnings 7/20/202218Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Error Analysis in GeneralFirms do not correct errors that are

25、 insignificantThree questions must be answered in this regard: What type of error is involved? What correcting entries are needed? How are financial statements to be restated?Error corrections are reported as prior period adjustments to the beginning retained earnings balance in the current year 7/2

26、0/202219Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Types of ErrorsErrors can occur in the following financial statements: Balance sheet Income statement Balance sheet and the income statementErrors can be:Counterbalancing (or self-correcting over twoaccounting periods)Non-counte

27、rbalancing (more than two periods needed) 7/20/202220Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Counterbalancing ErrorsQuestions to be considered are: Are the books closed? Are comparative statements presented?An entry is needed to adjust the beginning retained earnings balance

28、if: the books are closed, and the error is not counterbalanced, or the books are not closed, and the company is in the second year, and the error is already counterbalanced7/20/202221Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Changing from and to the Equity MethodFor a change to

29、 or from the Equity method, restatement of all prior period statements is requiredA change from the equity method to the fair value method must be made when: the investors level of influence falls below the requiredpercentage of ownershipA change from the fair value method to the equity method must

30、be made when: the investors level of influence rises above the required percentage of ownership7/20/202222Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Changing from the Equity MethodThe cost basis for accounting purposes is the carrying amount of the investment at the date of the

31、changeThe earnings and losses (previously recognized) remain part of the carrying valueAny amortization previously needed under the equity method ceasesTo the extent that dividends received by investor exceed investors share of investees earnings in subsequent periods: such excesses are reductions of the investment carryingamount 7/20/202223Intermediate Accounting, 10th Edition, Chapter 23 (Kieso et al.)Changing to the Equity MethodThe following amounts are retroactively adjusted (as if the investor had held the invest