A company changes its depreciation method from an accelerated system to straight-line. Which of the following would normally be true?

I. The change would be discussed in the auditor's report.
II. The cumulative effect of the change would appear, net of tax, on the income statement.
III. The change would appear in cash flow from operations as a cash inflow.
IV. The change would be mentioned in the footnotes.

A)I, II, III, and IV
B)I, II, and III
C)II and IV
D)I, II, and IV

Question

A company changes its depreciation method from an accelerated system to straight-line. Which of the following would normally be true?

I. The change would be discussed in the auditor's report.
II. The cumulative effect of the change would appear, net of tax, on the income statement.
III. The change would appear in cash flow from operations as a cash inflow.
IV. The change would be mentioned in the footnotes.

A)I, II, III, and IV
B)I, II, and III
C)II and IV
D)I, II, and IV

Quizplus · Accepted Answer

I. The change in depreciation method is considered a significant accounting policy change, and as such, should be disclosed in the auditor's report.

II. The cumulative effect of the change in depreciation method should be recognized in the income statement in the period of the change.

III. The change in depreciation method would not affect cash flows from operations, as it is a non-cash item.

IV. The change in depreciation method should be disclosed in the footnotes to the financial statements to provide additional information about the change and its impact on the financial statements.

A Company Changes Its Depreciation Method from an Accelerated System