| 7 |
Change in Accounting
Principle--results from adoption of a generally accepted accounting principle
different from the one used previously. |
| 8 |
Concerns a choice
from among two or more generally accepted accounting principles. Initial
adoption of a principle is not a change. |
| 14 |
Views on a change in Principle. |
|
a. |
Accounting principles should be applied
consistently
for
all periods presented in comparative financial statements. If not, misinterpretation
of earnings trends and other analytical data may occur. Where a change
in principle occurs, prior period financial statements should be restated
when presented in current reports for comparative purposes. |
|
b. |
Restating financial statements of prior
periods may dilute public confidence
in financial statements and may confuse those who use them. Financial statements
of prior periods prepared on the basis of generally accepted accounting
principles at that time should be considered
final. |
|
c. |
Restatement may be difficult and at
times impossible. |
|
d. |
Restatement may require assumptions
that furnish results different from what they would have been had the newly
adopted been used in prior periods. |
| 15 |
Justification for a Change in
Accounting Principle -- General presumption - An accounting principle once
adopted should not be changed. Consistent use enhances utility of financial
statements by facilitating analysis. |
|
| 16 |
General presumption may be overcome
only if the enterprise justifies the use of an alternative acceptable accounting
principle on the basis that it is preferable. |
|
| 17 |
General
Disclosure for a Change in Accounting Principle |
|
|
(a) |
Nature and justification for the change. |
|
(b) |
Effect on income. |
| 19 |
Reporting a Change in Accounting
Principle - General Rule --
Income before extraordinary items and net
income for the period of change should be reported on the basis of the
newly adopted accounting principle |
|
|
(a) |
Financial statements of prior periods included
for comparative purposes should be presented as previously reported. |
|
(b) |
Report cumulative effect of the change in
income of the current period in a manner similar to an extraordinary item
(between captions extraordinary items and net income). |
|
(c) |
Effect of adopting the new accounting
principle on income before extraordinary items and net income (and EPS
amounts) of the period of change should be disclosed. |
|
(d) |
Pro Forma (as if) presentations for income
before extraordinary items and net income and per share amounts (basic
and diluted, as appropriate under FASB Statement No. 128, Earnings per
Share) should be shown on face of the income statements for all periods
presented as if the newly adopted principle had been applied during all
periods affected. |
| 20 |
Cumulative effect-the
difference between (a) the amount of retained earnings at the beginning
of the period of change and (b) the amount of retained earnings that would
have been reported at that date if the newly adopted principle had ben
applied retroactively for all prior periods which would have been affected...
The cumulative effect should be shown in
the income statement between the captions "extraordinary items" and "net
income."
The cumulative effect is not an extraordinary
item, but should be reported in a manner similar to an extraordinary item.
Presentation of per-share amounts for the
cumulative effect of an accounting change shall be made either on the face
of the income statement or in the related notes. (amended by FAS No. 128) |
|
| 27 |
Special
Changes in Accounting Principle--
Applied retroactively
- Prior period financial statements are restated to reflect the newly adopted
principle.
Items requiring retroactive
treatment - |
|
|
(a) |
A change from
LIFO method of inventory pricing to some other method. |
|
(b) |
A change in method of accounting forlong-term
construction contracts. |
|
(c) |
A change to or from the "full
cost" method of accounting in the extractive industries. |
| 28 |
Nature and justification for
a change applied retroactively should be disclosed in the financial statements
for the period in which the change was adopted. The effect of the change
on income before extraordinary items, net income and related per share
amounts should be disclosed for all periods presented. |