Question 1

Accounting for a retrospective change requires
A) reissuing all prior financial statements affected by the change.
B) adjusting the ending balance of retained earnings for the current year.
C) reporting the "catch-up" adjustment on the current income statement.
D) adjusting the opening balance of each affected component of equity for the current year.

Accepted Answer

A retrospective change requires adjusting the opening balance of each affected component of equity for the current year to reflect the change as if it had always been in place.

Question 2

Which of the following should be given retrospective treatment?

Accepted Answer

B

Question 3

Which of the following is NOT considered a change in accounting policy?
A) change in depreciation method
B) change from FIFO to weighted average cost
C) initial adoption of a new accounting standard
D) change in accounting for a defined benefit pension plan from deferral and amortization to immediate recognition

Accepted Answer

A

Question 4

Which of the following is NOT considered to be an accounting error?
A) changing from the cash basis to the accrual basis
B) expensing the cost of a new machine
C) changing depreciation methods from declining balance to straight line
D) failing to accrue wages payable at year end

Accepted Answer

The answer of Which of the following is NOT considered...

Question 5

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate?
A) retrospectively only
B) current period and prospectively
C) current period and retrospectively
D) current period only

Accepted Answer

Changes in accounting estimates are accounted for in the current period and prospectively, meaning they affect the period of change and future periods, but not past periods.

Question 6

One condition required by IFRS is that a voluntary change in accounting policy must result in information that is
A) more reliable than before.
B) more reliable, but equally as relevant as before.
C) both more reliable and more relevant.
D) more relevant, but equally as reliable as before.

Accepted Answer

The answer of One condition required by IFRS is that...

Question 7

Which of the following is NOT considered to be an accounting change?
A) change in accounting estimate
B) change in the composition of the board of directors
C) change in accounting policy
D) correction of a prior period error

Accepted Answer

A change in the composition of the board of directors is not related to accounting and therefore not considered an accounting change. The other options- change in accounting estimate, change in accounting policy, and correction of a prior period error- are all accounting changes.

Question 8

Which of the following statements is correct?
A) Changes in accounting policy are always handled in the current or prospective period.
B) Prior year statements should always be restated for changes in accounting estimates.
C) A change from the deferral and amortization method to the immediate recognition method of accounting for defined benefit pension plans should be treated as a change in accounting policy.
D) Correction of prior period error should be presented as an adjustment on the current income statement.

Accepted Answer

A) This statement is incorrect as changes in accounting policy can also be handled retrospectively.
B) This statement is incorrect as changes in accounting estimates should only be applied in the current or prospective period, and prior year statements should not be restated.
C) This statement is correct as a change from the deferral and amortization method to the immediate recognition method of accounting for defined benefit pension plans is a change in accounting policy.
D) This statement is incorrect as correction of prior period error should be presented as a separate line item in the current period's financial statements, not as an adjustment on the income statement.

Question 9

An example of a correction of an error in previously issued financial statements is a change
A) from the FIFO method of inventory valuation to the average cost method.
B) in the service life of plant assets, based on changes in the economic environment.
C) from the cash basis of accounting to the accrual basis of accounting.
D) in the tax assessment related to a prior period.

Accepted Answer

DChanging from the cash basis of accounting to the accrual basis of accounting (C) corrects an error in the application of accounting principles. Adjusting for a change in the tax assessment related to a prior period (D) corrects an error in the measurement of tax expense or liability. Choices A and B represent changes in accounting estimates rather than corrections of errors.

Question 10

Stockton Ltd. changed its inventory system from FIFO to average cost. What type of accounting change does this represent?
A) A change in accounting estimate for which the financial statements for the prior periods included for comparative purposes do not need to be restated.
B) A change in accounting policy for which the financial statements for prior periods included for comparative purposes do not need to be restated.
C) A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be restated.
D) A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated.

Accepted Answer

Changing from FIFO to the average cost method is considered a change in accounting policy. According to accounting standards, when a company changes its accounting policy, it should restate the financial statements for prior periods included for comparative purposes to ensure consistency and comparability.

Question 11

Retrospective application is required for all
A) errors and non-mandated policy changes.
B) changes in estimates and non-mandated policy changes.
C) errors and changes in estimates.
D) changes in estimates.

Accepted Answer

Retrospective application is required for errors and non-mandated policy changes. This means that when an entity corrects an error or voluntarily changes an accounting policy (not due to a new standard), it must apply the change as if it had always been in effect. Changes in estimates, on the other hand, are accounted for prospectively.

Question 12

For accounting changes, which of the following is NOT allowed?
A) To use retrospective application for an accounting policy change without restatement, if restatement is impractical.
B) To net accounting errors for disclosure purposes.
C) To use prospective application for an accounting policy change, if allowed in the transition policy.
D) To use prospective application for a change in estimate.

Accepted Answer

Netting accounting errors for disclosure purposes is not allowed as it can hide specific errors and distort the financial statements. All other options are allowed as per the accounting standards.

Question 13

Which of the following alternative accounting methods is(are) allowed by ASPE and IFRS for reporting accounting changes?
A) prospective and retrospective
B) current and retrospective
C) current and prospective
D) retrospective only

Accepted Answer

ASPE and IFRS allow both prospective and retrospective accounting methods for reporting accounting changes. Prospective involves applying the new accounting policy to future transactions and events, while retrospective involves restating the previous financial statements to reflect the new accounting policy. Current accounting method is not an option for reporting accounting changes.

Question 14

The underlying principle of the retrospective application method is to
A) apply changes currently and in the future.
B) present all comparative periods as if the new accounting policy had always been used.
C) make assumptions about what management's intent was in prior years.
D) disclose all mistakes made in the past.

Accepted Answer

Retrospective application requires presenting comparative financial statements as if the new accounting policy had always been used. This means that the changes are applied to prior periods' financial statements to reflect the impact on the financial position, performance, and cash flows of the organization. It helps to provide a more accurate representation of the financial statements and facilitates better decision-making.

Question 15

A publicly accountable enterprise changes from straight-line depreciation to double declining balance. Management feels that this will result in equally reliable and more relevant information; thus it will be treated as a change in accounting policy. The entry to record this change should include a
A) debit to Accumulated Depreciation.
B) credit to Other Comprehensive Income.
C) credit to Deferred Tax Asset.
D) debit to Deferred Tax Liability.

Accepted Answer

The answer of A publicly accountable enterprise changes from straight-line...

Question 16

When an entity is first transitioning to IFRS, any adjustments required to bring GAAP measures in line with IFRS
A) are recognized directly in other comprehensive income.
B) are recognized directly in retained earnings.
C) must be accounted for by prospective application.
D) are ignored.

Accepted Answer

When an entity is first transitioning to IFRS, any adjustments required to bring its previous GAAP measures in line with IFRS are recognized directly in retained earnings. This is to ensure that the opening balance sheet under IFRS reflects all adjustments necessary to comply with IFRS standards, without retroactively altering the income statement of prior periods.

Question 17

When a company decides to switch from deferring development costs to expensing them immediately, this change should probably be treated as a
A) change in accounting policy.
B) change in accounting estimate.
C) prior period adjustment.
D) correction of an error.

Accepted Answer

The answer of When a company decides to switch from...

Question 18

Which type of accounting change may be accounted for in current and future periods only?
A) change in accounting estimate
B) change in inventory costing method
C) change in accounting policy
D) correction of an error

Accepted Answer

A change in accounting estimate is a prospective accounting change that reflects a new estimate or judgment about the effect of an accounting item. It is applied in current and future periods only and does not require the adjustment of prior period amounts.

B, C, and D require retrospective application, which means restating prior period amounts to reflect the change. A change in inventory costing method is a change in accounting policy, while correction of an error is a retrospective accounting change that corrects an error made in a prior period.

Question 19

Under IFRS, which of the following disclosures is NOT required for the correction of an accounting error?
A) the amount of the correction made to each affected financial statement item for each prior period presented
B) the nature of the error
C) who was responsible for the error
D) the effect of the correction on both basic and diluted earnings per share for each prior period presented

Accepted Answer

Under IFRS, the disclosure of who was responsible for the error is not required. The focus is on the nature of the error, the correction amounts for each affected financial statement item, and the impact on earnings per share, rather than assigning blame.

Question 20

Which of the following is NOT considered to be a change in accounting policy?
A) changing from weighted average to FIFO for valuing inventories
B) initial adoption of a new accounting standard
C) reclassifying items on the financial statements of prior periods to make the statements more comparable
D) changing from the cost basis to the fair value model for measuring investments

Accepted Answer

Reclassifying items on the financial statements of prior periods to make the statements more comparable is considered a correction of an error, not a change in accounting policy. A change in accounting policy involves a deliberate shift in the method of accounting for a particular item or transaction.

Quiz 9: Accounting Changes and Error Analysis

Accounting for a retrospective change requires

Which of the following should be given retrospective treatment?

Which of the following is NOT considered a change in accounting policy?

Which of the following is NOT considered to be an accounting error?

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate?

One condition required by IFRS is that a voluntary change in accounting policy must result in information that is

Which of the following is NOT considered to be an accounting change?

Which of the following statements is correct?

An example of a correction of an error in previously issued financial statements is a change

Stockton Ltd. changed its inventory system from FIFO to average cost. What type of accounting change does this represent?

Retrospective application is required for all

For accounting changes, which of the following is NOT allowed?

Which of the following alternative accounting methods is(are) allowed by ASPE and IFRS for reporting accounting changes?

The underlying principle of the retrospective application method is to

A publicly accountable enterprise changes from straight-line depreciation to double declining balance. Management feels that this will result in equally reliable and more relevant information; thus it will be treated as a change in accounting policy. The entry to record this change should include a

When an entity is first transitioning to IFRS, any adjustments required to bring GAAP measures in line with IFRS

When a company decides to switch from deferring development costs to expensing them immediately, this change should probably be treated as a

Which type of accounting change may be accounted for in current and future periods only?

Under IFRS, which of the following disclosures is NOT required for the correction of an accounting error?

Which of the following is NOT considered to be a change in accounting policy?