ACCOUNTING CHANGES AND ERROR CORRECTIONS

Question 1

Changes in Accounting Estimate

Answer 1

Prospective

Estimate - incorrect

Changes in estimates affect only the current and subsequent periods (not prior periods and not retained earnings)

Question 2

Changes in Accounting Principle

Answer 2

Retrospective
only if required by GAAP

Direct Effects
Indirect Effects
Cumulative Effects - net of taxes

Question 3

Exceptions to the General Rule - AP

Answer 3

Impracticable to Estimate
Change in Depreciation

Question 4

Changes in Accounting Entity

Answer 4

Retrospective

Question 5

Error Correction

Answer 5

Prior Period Adjustment

Question 6

Comparative Financial Statements Presented and Not Presented

Answer 6

• Correct information ( if year is presented)
• Adjust beginning RE of the earliest year presented ( if the year is not presented)