Effect of accounting changes

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Benzinga  Nov 1  Comment 
United States Steel Corporation (NYSE: X) stock is soaring Wednesday after the company reported a big third-quarter earnings beat Tuesday. But while U.S. Steel investors are cheering the company’s big numbers, Axiom analyst Gordon Johnson is...
MarketWatch  Oct 26  Comment 
The company is planning to host a conference call and webinar in November to discuss an accounting change coming next year that will affect how all U.S. companies book revenue.
The Hindu Business Line  Aug 7  Comment 
Banks must install appropriate software forthwith to deal with the significant accounting changes owing to Ind AS and GST
MarketWatch  Jul 19  Comment 
Microsoft Corp. will have plenty to talk about when it reports the final quarterly earnings for its fiscal year on Thursday.
Wall Street Journal  Jul 19  Comment 
The last crisis left investors guessing about loan losses, an accounting change will fix that - at a cost.
MarketWatch  Jun 28  Comment 
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Insurance Journal  May 18  Comment 
Insurers in over 100 countries face a “once in a lifetime” accounting change from January 2021 with the introduction of a uniform international book-keeping standard, details of which will be published on Thursday. Twenty years in the works,...
New York Times  May 12  Comment 
The change in how companies must value investments in other companies could cause major distortions in earnings reports.
Benzinga  Mar 23  Comment 
Salesforce.com, inc. (NYSE: CRM) is well positioned to realize a large one-time gain from accounting changes, according to Baird's Rob Oliver" who detailed in a research report several accounting changes that are specific to salesforce and how it...




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Effect of accounting changes appear on a company's financial statements whenever accounting principles change and impact net income from previous reporting periods.

Effect of accounting changes is relevant only to a company's financial statements and the reporting of its net income or net loss. When a company changes or updates the accounting principles it uses to calculate its income, this can affect the company's reported income in previous reporting periods.

In order to allow meaningful evaluation of a company's current and prior revenues, companies must disclose the effect of changes in accounting principles on their balance sheet. The cumulative effect of accounting changes is most often disclosed in a footnote that explains its financial effect, allowing readers to evaluate the current accounting period's net income against prior periods.

A cumulative effect of accounting change is seen after a change in:

  1. Accounting principles, such as a new method of calculating Amortization or Depreciation
  2. Accounting estimates - for example, a revised projection of Accounts Receivable
  3. Reporting entity - for example, in a merger or acquisition, the new company now includes an entirely new group of assets

==Example== 8====D In 1970, Chrysler changed from LIFO "Last In, First Out" accounting to FIFO "First In, First Out" accounting principles. This change created a cumulative effect of $53.5 million in the company's net income, and if it had been disclosed as part of net income on the company's financial statement the company would have reported a net income of $45.9 million. But instead, it reported previous income statements using the new principle, which led to a more accurate reported net loss of $7.6 million.[1]

References

  1. The CPA Journal, "Cumulative Effect of a Change in Accounting Principle: Remove It from the Income Statement," January 2003
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