Exam 22: Accounting Changes and Error Analysis

Which of the following would be a reason where IASB would permit companies to change accounting policy?

An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting policy that is applied retrospectively.

Under U.S.GAAP, the impracticality exception applies both to changes in accounting policies and to the correction of errors.

Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so.

Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

A change in accounting policy is a change that occurs as the result of new information or additional experience.

When it is impossible to determine whether a change in policy or change in estimate has occurred, the change is considered a change in estimate.

An example of a correction of an error in previously issued financial statements is a change

The requirements for disclosure are the same whether a change is voluntary or is mandated by the issuance of a new IFRS.

An income statement classification error has no effect on the statement of financial position and no effect on net income.

Companies must make correcting entries for non-counterbalancing errors, even if they have closed the prior year's books.

Statement of financial position errors affect only the presentation of an asset or liability account.

A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year end.This merchandise was omitted from the year-end physical count.How will these errors affect assets, liabilities, and equity at year end and net income for the year?

If an IASB standard creates a new policy, expresses preference for, or rejects a specific accounting policy, the change is considered clearly acceptable.

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

If, at the end of a period, a company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause

IASB requires companies to use which method for reporting changes in accounting policies?

For counterbalancing errors, restatement of comparative financial statements is necessary even if a correcting entry is not required.

Which of the following disclosures is not required for a change from average cost to FIFO?