A company should report a prior-period adjustment when
The correction of a mathematical error in the calculation of prior year’ depreciation
A change from the income tax basis of accounting to accrual basis would require restatement of prior years’ FS
Because the change from income tax basis of accounting (Non-GAAP) to accrual basis (GAAP) is an error correction
A change from the individual item approach to the aggregated approach to apply the lower cost and net of tax realized value to FIFO is consider
Change in accounting principle, thus cumulative effect of this change should be reported as retrospective adjustment on the RE statement, with separate disclosure
A change in the method of depreciation is handled
Prospectively as a change in estimate, with no retroactive restatement or cumulative effect adjustment, Thus change the beginning of the year to correct treatment
*This should not be recorded separately on any financial statement
A change is accounting principle (LIFO to FIFO) is shown on
The RE as an adjustment to the beginning balance of RE
A change in depreciation method is not considered a change in accounting principle because
It’s a change in estimate and handled prospectively at the beginning of the year of change (start with the BV)
A change in accounting principle that is inseparable from a change in accounting estimate should now be reported as
Change in estimate to make a component of income from continuing operations, in the period of change and future periods if the change affects both
A change in accounting estimate affects only the current and subsequent (future) periods,
If the change affects both, it won’t affect prior periods or RE
Financial statement of all prior presented should be restated when there is a ‘change in entity’ such as:
Changing companies in consolidated FS
Consolidated FS vs. previous individual FS
If a change in accounting estimate cannot be distinguished from a change in accounting principle
The change is considered in accounting estimate treated as a change in accounting estimate and is accounted for prospectively
The cash basis for financial reporting is not GAAP,
Therefore it is a correction of an error from prior periods and needs to be adjusted
