Question

Assume they do go public and are registered with the SEC. If CMC justifies a change in accounting method as preferable under the circumstances, and the circumstances change, can they switch back to the prior method of accounting before the change? Why or why not? How do IFRS differ from GAAP regarding accounting changes? Are there any major issues? Memorandum Mechanics should be as follows: The body of the memorandum should be a professional presentation centered on clear and concise writing. The responses to the questions should be detailed, well researched, and specifically related to CMC's industry. The memorandum itself does not have to be in APA format. However, you should have in-text citations and a reference page. Both of these items should be in APA format. Use the FASB Codification and IFRS to address all technical accounting issues presented in the questions, being certain to reference the applicable sections of the Codification and IFRS in your report. You may quote directly from the Codification and IFRS as long as all direct quotes are included in quotation marks. Any other sources used to support your responses should similarly be properly documented. You should have other credible sources in addition to the Codification and IFRS.

Answer 1

What are the categories of accounting changes ?

• Change in accounting poliy
• Change in accounting estimate
• Change in reporting entity

Here we have change in accounting estimate because it does not full fill the 3 requirements of change in presentation, measurement and recognition

What are the conditions that justify a change in depreciation method, as considered by CMC?

The condition was that they have been expanding and in the process they would acquire assets. Change in depreciation method to accelerated method may show information regarding the current book value of assets in a better way with their FV in a market.

What are the accounting and reporting guidelines for a change in accounting principle related to depreciation methods?

The change should lead to better presentation of information which is reliable and relevant or the change should be as per change in corresponding standard

If they proceed with the change in depreciation methods, how will it affect their balance sheet and income statement (in general)?

Under accelerated method, the assets get depreciated at higher amount in the books for the initial year where as depreciation is also on higher side because of more depreciation charged than the SLM method. For the assets in use, the change would be prospective with no prior period adjustment and a note regarding it in the report for the justification as per FAS 154

An expert here is allowed to answer initial 4 questions only in case of multi, Hope this helps.