In: Accounting
Company XYZ is an SEC filer that has a fiscal year-end of December 31. XYZ’s Indian subsidiary (XYZ India) has historically closed its books on a one month lag (i.e., as of November 30) in order to meet the parent company’s reporting deadline. The Company has consistently disclosed this information in the footnotes to its Form 10-K. During the second quarter of 20X9, XYZ India upgraded its systems and is able to complete its close process within a shorter period of time. Management is seeking to eliminate the one month lag because it is no longer needed to achieve timely consolidation. 1. Is this change allowed? If so, is it a –Change in accounting principle –Change in accounting estimate –Correction of an error in previously issued financial statements, or –Change in reporting entity 2. In what Period should this be recognized (retrospective, current and/or prospective) 3. Is financial statement disclosure required?
Answer:-
1. This is change in accounting principle ( change in reporting entity )
2. This will not affect past financial statements. So it is prospective approach
3. and This will be require disclosure in Financial Statements .
Explanation :-
The above case involves change in reporting entity.
The financial accounting term changes in reporting entity refers to a switch from one type of reporting entity to another. Changes in reporting entity can fall into several categories, including a change in subsidiaries, the number of companies combined into a consolidated report, as well as the mix of companies appearing in a consolidated report.
When deviating from past practices, or modifying information appearing in financial reports, these "accounting changes.
as company is constantly disclosing such issue in foot
note,
and any modification or changes to the accounting principle will
warrant a separate disclosure in financial statement for better
understanding of such change.