Question

Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles. Additionally, identify and describe the approach the FASB requires for reporting changes in accounting principles. Finally, discuss and illustrate how a correction of an error in previously issued financial statements should be handled.

Intermediate Accounting textbook

• Author: Kiexo, Weygandt, and Warfield
• Publisher: John Wiley & Sons
• Edition: 17th

Answer 1

The Accounting Principles are the set of rules, regulations and Complaince rules has to be followed by the each and every company while preparing and presenation of Financial Statements at the year ended of the reporting period . This will shows opertaing perforamce of the Company.Generally those set of accounting Principles are issed by the Financial Accounting Standards Board on consideration of Generally Accepted accounting Principles.Three Fundamental accounting priciples place a major role those are as follows :-

Consistency Principle :- These Accounting Principle describes that every organization should follow same accounting methods for each and every year. That will helps the stakeholders of the Comapny for the purpose of Analysis and Comparison of the Preveious year data with current reporting year data.

Going Concern Principle : The Main motto of this Prnciple is "This assues that Business will continue to exist rather than bankcrpt/Liquidation of the Company in next couple of year. Further this concept will allows that postponement of recognation of some of the Prepaid expenses rather than recognized in them all in one reporting period.

Accural Concept Principle : Revenues and costs are recorded when they are earned or incurred (and not as money is received or paid) in the periods to which they relate i.e we can say that we should consider both Paid and Pyable aswell as Received or receivable in single financial year.

The Following are the three approachesfor reporting changes in accounting principles and polices as possible are as follows :-

1. Changes in caluaction of Methods of depreciation, depletion and amortisation (AS-10-PPE)
2. Changes in Recognation of Treatment of expenditure during construction (AS-7)
3. Recognation of Conversion or translation of foreign currency items(AS-11)
4. Valuation of inventories(AS-2)
5. Treatment of goodwill(AS-26)
6. Valuation of investments(AS-13)
7. Treatment of retirement benefits(AS-18)
8. Recognition of profit on long-term contracts (AS-18)
9. Valuation of fixed assets (AS-10)
10. Treatment of contingent liabilities (AS-28)

Those are the some of the possibility of changes in accounting policies adpoted by thr organization.

As per Financial accounting Statndards Board guideline any changes adopted by the oranization has to report the same in Notes to accounts as part of integral part of the financial statements to ensure better understanding of readrs and stakeholders.The same as said by the Accounting Standard -1 - Disclousre of accounting policies .

The Accounting Standard -5 - Net profit or Loss, Prior period items decribes that any item which is wrongly accounted in eariler Financial Year financial statements the same has to be corrected in reporting financial year by way of showing the effect of prior period item in the Financial Statements and the same has to be sepaeartly reported in integral part of the Financial Statements under part of Notes to accounts.