Accounting for Changes



Accounting for Changes

Introduction

When the accounting change is motivated by a change in accounting standards or adoption of a new accounting standard, the new regulations generally provide, under the transitional arrangements, the accounting treatment of such change. Should not establish transitional arrangements should apply the general approach.

In general, an accounting can be applied retrospectively or prospectively. Retrospective application is applying the new accounting principle to the corresponding financial statement items as if it had always been applied, i.e., since the economic event occurred which led to the corresponding item. This implies the need to adjust the opening balance of the items affected by the change. By contrast, prospective application is to apply the new accounting principle to transactions taking place after its adoption; therefore, there is no need to adjust the financial statements to the new accounting principle.

Both the revised IAS 8 (IASC, 1993) as the PGC, state that the accounting changes should be applied retrospectively. The two standards consider the accounting change occurs at the start of of the accounting year. Therefore, first, to determine the cumulative effect of adjustment in liabilities and assets as a result of the change and adjust accordingly the items affected. The counterpart to these settings allows, theoretically, two treatments:

As an outstanding result for the year in which the change is made, or

As an adjustment to retained earnings or reserves.

The first option is that adopted by the PGC, and the problem that the results of operations are affected by items from previous years. The second option is the preferred treatment proposed in the revised IAS 8. This standard requires, presented comparative information for prior periods to correct the financial statements of prior periods to reflect the effect from the beginning of the new approach adopted.

Purpose of the Study

The purpose of this study is to analyze the accounting changes in the selected companies, as reported by the companies in 2011.

Methodology

The secondary data collection method would be used for this research. The data will be collected from the internet, news articles, annual reports, and published public information by the company.

Limitations of the Study

Every research study has limitations associated to it; similarly, this research study has its own limitations. Time constraint is a factor that has an effect on the analysis of any research study. Time constraint considers the fact that the dissertation has a limited time to be completed. Finance for completing the dissertation is a major constraint as the research is conducted by a student and ...