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Types of Accounting Changes
3.Correction of an error in prior period financial statements
– Omissions from or mistakes in financial statements of prior periods caused by the misuse or failure to use reliable information that existed at the time financial statements were prepared
1. Is required by a primary source of GAAP, or 2. Results in portraying reliable and more
relevant information about effects of transactions, events or conditions (voluntary)
INTERMEDIATE ACCOUNTING
TENTH CANADIAN EDITION
Kieso • Weygandt • Warfield • Young • Wiecek • McConomy
CHAPTER Accounting Changes
and Error Analysis
Prepared by:
– Deferral of development expenditures when previously these expenses were expensed as they were immaterial
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• For example, is a change in depreciation method a change in policy or a change in estimate?
– At first glance, a change in depreciation method appears to be a change in accounting policy
statements where there have been retrospective changes to previously reported results. • Identify the differences between ASPE and IFRS related to accounting changes.
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66ቤተ መጻሕፍቲ ባይዱ
Changes in Accounting Policies
• Under ASPE, there is a third type of policy change permitted without having to meet the reliable but more relevant test:
• Identify and differentiate among the types of accounting changes. • Identify and explain alternative methods of accounting for accounting changes. • Identify the accounting standards for each type of accounting change under ASPE and
disclosure requirements. • Apply the prospective application method for an accounting change and identify the
disclosure requirements for a change in an accounting estimate. • Identify economic motives for changing accounting methods and interpret financial
Lisa Harvey, CPA, CA
Rotman School of Management, University of Toronto
CHAPTER 21
ACCOUNTING CHANGES AND ERROR ANALYSIS
After studying this chapter, you should be able to:
– Defined benefit plans – Income taxes – Measuring equity component of certain financial
instruments
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Changes in Accounting Policies
3. Between or among allowed ASPE accounting options for:
– Investments in subsidiaries, and investments with significant influence or joint controls
– Development phase expenditures on internally generated intangible assets
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Changes in Accounting Estimates
• Examples of items requiring estimates include:
– Uncollectible receivables – Inventory obsolescence – Fair value of financial assets/liabilities – Useful lives and residual values of depreciable
2. New policy that recognizes events that have occurred for the first time or that were previously immaterial
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assets – Liabilities for warranty costs
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Changes in Accounting Estimates
• Differentiating a change in policy and a change in estimate can be difficult
Analysis •Motivations for change •Interpreting accounting changes
IFRS/ASPE Comparison
•Comparison of IFRS and ASPE
•Looking ahead
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– They may be intentional or an oversight
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Changes in Accounting Policies
• Under IFRS, change in an accounting policy is permitted only when the change:
Changes in Accounting Estimates
• Future conditions and events and their effects cannot be known with certainty; therefore estimation requires exercise of judgment
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Accounting Changes and Error Analysis
Changes in Accounting Policies and Estimates, and Errors •Types of accounting changes •Alternative accounting methods •Accounting standards •Retrospective application – change in accounting policy •Retrospective restatement – correction of error •Prospective application
• Does not result from adoption of a:
1. Different policy necessitated by events or transactions clearly different in substance from those previously occurring
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Types of Accounting Changes
1.Change in Accounting Policy