中级会计学英文版课件：ch20 Accounting Changes

Lo/Fisher,

Intermediate

Accounting

Vol.2Chapter

20Copyright

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1Accounting

ChangesLo/Fisher,

Intermediate

Accounting

Vol.2LEARNING

OBJECTIVESCopyright

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2014

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Inc.20

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2L.O.

20-1.Evaluate

whether

an

accounting

change

is

anerror

correction,

a

change

in

accountingpolicy,

or

a

change

in

estimate.L.O.

20-2.Apply

the

prospective

and

retrospectivetreatments

for

accounting

changes.L.O.

20-3.Evaluate

the

effects

of

retrospectiveadjustments

and

record

those

effectsaccounting

recordsLo/Fisher,

Intermediate

Accounting

Vol.2A:

TYPES

OF

ACCOUNTING

CHANGECopyright

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2014

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3L.O.

20-1Accounting

changes

occur

regularlyThere

are

three

types:Changes

in

accounting

policyCorrections

or

errors

from

prior

periodsChanges

in

accounting

estimatesLo/Fisher,

Intermediate

Accounting

Vol.2TYPES

OF

ACCOUNTING

CHANGE(Continued)Copyright

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2014

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Inc.20

-

4

The

three

types

of

accounting

changes

differsignificantly

based

on:whether

choice

or

fact

triggered

the

changei.ii.

If

a

matter

of

fact,

whether

information

wknown

or

should

have

been

knownLo/Fisher,

Intermediate

Accounting

Vol.21.

Changes

in

Accounting

PolicyCopyright

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Inc.20

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5

A

change

in

accounting

policy

–

an

accountingpolicy

change

made

at

the

discretion

ofmanagement;

from

one

acceptable

GAAP

toanother

acceptable

GAAP.For

example,

a

switch

from

FIFO

to

weightedaverage

method

of

inventory

costing

Accounting

policy

changes

are

infrequent

now;restrictedby

GAAPLo/Fisher,

Intermediate

Accounting

Vol.2Changes

in

Accounting

Policy

(continued)Copyright

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2014

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Inc.20

-

6

IFRS(IAS

8)

permits

accounting

policy

changeswhen:New

IFRS

requirements

are

introduced,orthe

voluntary

change

will

enhancethe

reliability

and

relevapresentedfinancial

informatioExhibit

20-1

presents

examples.Lo/Fisher,

Intermediate

Accounting

Vol.2Examples

of

Changes

in

Accounting

PolicyCopyright

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7Lo/Fisher,

Intermediate

Accounting

Vol.22.

Corrections

of

Errors

from

Prior

PeriodsCopyright

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Inc.20

-

8

A

correction

of

an

error

-

an

accounting

changemade

necessary

by

the

discovery

of

an

incorrectamount

given

the

information

available

at

the

timethe

amount

was

reportedWhenever

errors

are

found,

they

must

be

correctedLo/Fisher,

Intermediate

Accounting

Vol.2Corrections

of

Errors

from

Prior

Periods(Continued)Errors:Could

be

simple

arithmetic

errors

such

as:-

Calculation

of

bad

debts-

Omission

of

residual

value

in

calculatingdepreciationCould

be

complex

errors

in

judgment,such

as:-

misapplying

the

revenue

recognition

criteriaExhibit

20-2

presents

examples

of

errors

and

non-errorsCopyright

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2014

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-

9Lo/Fisher,

Intermediate

Accounting

Vol.220-A.3

Changes

in

Accounting

EstimatesCopyright

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Inc.20

-10Change

in

estimate:

An

accounting

change

madenecessary

by

the

arrival

of

new

informatioAccrual

accounting

inherently

requires

future

forecForecasts

entail

uncertaintyArrival

of

new

(better)

information

necessitatechanges

in

estimates

For

example,

estimated

useful

lives

of

PPE,

maychange

with

actual

use.Lo/Fisher,

Intermediate

Accounting

Vol.2Changes

in

Accounting

Estimates(continued)Copyright

©

2014Pearson

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Inc.20

-11Examples

of

items

requiring

estimates:Total

costs

on

long-term

contractsAllowance

for

Doubtful

accountsMineral

reservesImpairment

of

intangible

assetsDeferred

taxes

when

tax

rates

changeWarranty

liabilitiesSee

Exhibit

20-3Lo/Fisher,

Intermediate

Accounting

Vol.24.

SummaryCopyright

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Inc.20

-12Two

characteristics

distinguish

accounting

changesChange

by

choice

or

new

information?Change

by

new

information

or

informationknown

or

should

have

been

known

in

prior

period?A

change

by

choice

is

a

change

in

accounting

policyA

change

by

all

new

information

is

a

change

in

estimateA

change

by

old

information

is

a

correction

of

errorLo/Fisher,

Intermediate

Accounting

Vol.2Copyright

©

2014Pearson

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Inc.20

-13Lo/Fisher,

Intermediate

Accounting

Vol.2B.

TREATMENTS

FORACCOUNTING

CHANGES

(L.O.

20-2)

Accounting

changes

are

generally

reported

intwo

ways:Prospectively

(looking

forward)Retrospectively

(looking

backwards)Copyright

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Inc.20

-14Lo/Fisher,

Intermediate

Accounting

Vol.21.

Prospective

AdjustmentCopyright

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2014Pearson

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Inc.20

-15The

prospective

adjustment

-

applies

anaccounting

change

only

to

the

current

and

futureperiods

without

any

changes

to

past

financialstatements.

All

changes

in

estimates

are

accounted

forprospectively

New

information

that

triggered

change

inestimate

not

available

in

prior

periodsLo/Fisher,

Intermediate

Accounting

Vol.2Prospective

Adjustments

(continued)Copyright

©

2014Pearson

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Inc.20

-16

Do

not

adjust

amounts

in

prior

periods’statements

Include

effect

of

change

in

statements

ofcurrent

year

Include

effect

of

change

in

statements

offuture

periods

if

applicable.

See

Exhibit

20-5

for

some

examples

ofchanges

in

estimates

and

prospectiveadjustmentsLo/Fisher,

Intermediate

Accounting

Vol.22.

Retrospective

AdjustmentCopyright

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2014Pearson

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Inc.20

-17A

retrospective

adjustment

–

applies

anaccounting

change

to

all

periods

affected

in

thepast,

present,

and

future.

Used

for

correction

of

errors

and

changes

inaccounting

policy

Errors

are

corrected

for

prior

periods

ifcomparative

reports

are

presentedAdjustments

permit

comparability/consistencyLo/Fisher,

Intermediate

Accounting

Vol.2Retrospective

Adjustment

(continued)Copyright

©

2014Pearson

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Inc.20

-18

Adjust

opening

balances

of

current

year

toreflect

changes,

assuming

they

were

in

effectfrom

earliest

prior

year

connected

to

changes.

IAS

1

requires

presentation

of

threecomparative

balance

sheets

in

the

year

ofchange

in

accounting

policySee

Exhibit

20-7Lo/Fisher,

Intermediate

Accounting

Vol.2Types

of

Changes

and

TreatmentCopyright

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2014Pearson

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Inc.20

-19Lo/Fisher,

Intermediate

Accounting

Vol.2Retrospective

Adjustment

(continued)Changes

Not

Requiring

Retrospective

Treatment

Where

retrospective

treatment

is

impractical,change

in

accounting

policy

is

treated

as

a

firsttime

adoption

Thus,

change

from

costmodelto

revaluationmodel

for

PPE

and

intangibles

treated

as

a

firstrevaluationRevaluation

to

cost

model?

Treat

retrospectivelyCopyright

©

2014Pearson

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Inc.20

-20Lo/Fisher,

Intermediate

Accounting

Vol.2C:

CHANGES

IN

ACCOUNTING

STANDARDS

Treatment

of

standard

changes

depends

on

theparticular

standard

Treatment

could

be

retrospective,

prospective,or

modification

of

the

two.

Required

treatment

normally

specified

intransitional

provisionsDefault

treatment

is

retrospective

adjustmentCopyright

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2014Pearson

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Inc.20

-21Lo/Fisher,

Intermediate

Accounting

Vol.2D:

IMPLEMENTING

RETROSPECTIVEADJUSTMENTS

Prospective

method

is

pervasive

and

easier

toimplement

as

illustrated

for:

Changes

in

the

estimated

cost

of

long-term

contracts

(Ch.

4)Changes

in

estimates

for

bad

debts

(Ch.

5)Changes

in

estimated

useful

lives

(Ch.

8)Changes

in

tax

rates

(Ch.

16)Copyright

©

2014Pearson

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Inc.20

-22Lo/Fisher,

Intermediate

Accounting

Vol.2D:

IMPLEMENTING

RETROSPECTIVEADJUSTMENTS

(continued)Copyright

©

2014Pearson

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Inc.20

-23

Retrospective

method

complicated

by

need

tomakechanges

to

past

financial

statementsHow

far

back?As

far

back

as

necessary

so

that

the

next

set

offinancial

statements

will

be

presented

correctly.

Also

distinguish

between

changes

inpresentation

and

changes

in

theaccountingrecordsLo/Fisher,

Intermediate

Accounting

Vol.21.

Retrospective

Adjustments

Involving

OnlyPresentation

Involves

presentation

of

balance

sheet

itemsonly.

Items

misclassified

but

totals

fine,

such

as,classifying

current

liabilities

as

long-term.Correct

presentation

in

next

set

of

financials.No

journal

entries

required.See

Exhibit

20-8Copyright

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-24Lo/Fisher,

Intermediate

Accounting

Vol.22.

Retrospective

Adjustments

Affecting

onlyTemporary

AccountsInvolveincome

statement

items

only

Revenue

and

expense

misclassified;

such

as,“interest

expense”

included

in

“salary

expen

If

temporary

accounts

closed

or

error

found

insubsequent

period,

correct

presentation

in

nextset

of

comparative

financialsSee

Exhibit

20-9Copyright

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Inc.20

-25Lo/Fisher,

Intermediate

Accounting

Vol.23.

Retrospective

Adjustments

Affecting

BothPermanent

and

Temporary

Accounts

Both

income

statement

and

balance

sheetaccounts

involved,

e.g.

accrued

revenue

notrecorded.

Due

to

links

between

permanent

and

temporaryaccounts,

most

adjustments

affect

both.Copyright

©

2014Pearson

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Inc.20

-26Lo/Fisher,

Intermediate

Accounting

Vol.2Retrospective

Adjustments

Affecting

BothPermanent

and

Temporary

Accounts

(continued)

Temporary

accounts

closed

to

retained

earnings(RE)

and

AOCI

at

year-end.

Thus,

retroactive

adjustments

on

temporaryaccounts

of

prior-periods

recorded

through

REand

AOCI.Two

types

of

accruals

to

deal

with;

those

that:reverse

in

subsequent

periodreverse

over

a

longer

period

of

timeCopyright

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2014Pearson

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Inc.20

-27Lo/Fisher,

Intermediate

Accounting

Vol.2a.

Retrospective

Adjustments

for

Accruals

thatReverse

in

the

Immediate

Subsequent

PeriodCopyright

©

2014Pearson

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Inc.20

-28

Occur

in

one

period,

correct

in

the

next

(alsocalled

counter-balancing

errors).Include:

Failure

to

record

unearned

revenues/or

toaccrue

revenues

Failure

to

record

prepayments/or

to

accrueexpensesOverstating/understating

ending

inventoriesLo/Fisher,

Intermediate

Accounting

Vol.2Adjustments

for

accruals

that

reverse

in

the

nextperiod

(continued)

Since

accrual

and

reversal

occur

in

consecutiveperiods,

adjustments

needed

only

if

second(reversal)

year

overlaps

with

current

fiscal

yeaor

comparative

years

presented.

No

adjustments

necessary

if

accrual

and

reversaloccur

before

the

beginning

of

the

earliestcomparative

year..See

Exhibit

20-10Copyright

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-29Lo/Fisher,

Intermediate

Accounting

Vol.2Adjustments

for

accruals

that

reverse

in

the

nextCopyright

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2014Pearson

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Inc.20

-30period

(continued)If

adjustments

are

necessary:

Develop

a

clear

picture

of

what

is

in

theaccounts

now

(before

adjustments)

Develop

a

clear

picture

of

what

should

bein

the

accounts

now

(after

adjustments)Debit

and

credit

accounts

to

bring

(1)

to

(2

Remember

that

closed

nominal

accounts

ofprior

years

cannot

be

used;

use

RE

insteadLo/Fisher,

Intermediate

Accounting

Vol.2Adjustments

for

Accruals

that

reverse

in

the

nextperiod

(continued)

If

reversal

occurs

in

the

comparative

year,adjustments

cannot

be

made

using

journalentries,

temporary

accounts

wereclosed.

The

changes

can

be

made

separately

duringfinancial

statement

preparation.Copyright

©

2014Pearson

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Inc.20

-31Lo/Fisher,

Intermediate

Accounting

Vol.2Adjustments

for

Accruals

that

reverse

in

the

nextCopyright

©

2014Pearson

Canada

Inc.20

-32period

(continued)

If

error

occurs

in

prior

year,

and

reversa