Volume 2.

Volume 2

C H A P T E R 22 ACCOUNTING CHANGES AND ERROR ANALYSIS
Intermediate Accounting IFRS Edition Kieso, Weygandt, and Warfield

Learning Objectives Identify the two types of accounting changes.
Describe the accounting for changes in accounting policies. Understand how to account for retrospective accounting changes. Understand how to account for impracticable changes. Describe the accounting for changes in estimates. Describe the accounting for correction of errors. Identify economic motives for changing accounting policies. Analyze the effect of errors.

Accounting Changes and Error Analysis
Changes in accounting policy Changes in accounting estimate Correction of errors Summary Motivations for change of policy Statement of financial position errors Income statement errors Statement of financial position and income statement effects Comprehensive example Preparation of statements with error corrections

Accounting Changes Tipe perubahan akuntansi :
Perubahan prinsip akuntansi (Change in Accounting Policy) Perubahan estimasi akuntansi (Changes in Accounting Estimate) Errors are not considered an accounting change. LO 1 Identify the two types of accounting changes.

Changes in Accounting Policy
Perubahan Prinsip Akuntansi : melibatkan perubahan dari satu prinsip akuntansi yang berlaku umum ke yang lainnya. Contoh : Average cost to LIFO. Completed-contract to percentage-of-completion. Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is not an accounting change. LO 2 Describe the accounting for changes in accounting policies.

Three approaches for reporting changes: Pelaporan perubahan pada periode berjalan Retrospectively : menyusun kembali laporan keuangan tahun sebelumnya atas dasar yang konsisten dengan prinsip yang baru diterapkan. IASB requires use of the retrospective approach. Rationale - Users can then better compare results from one period to the next.

Prospectively (in the future) : Hasil yang dilaporkan sebelumnya biasanya tidak diubah. Saldo awal tidak perlu disesuaikan FASB menyarankan agar perusahaan memakai pendekatan retrospektif

Retrospective Accounting Change Approach IFRS permits a change in policy if: It is required by IFRS; or It results in the financial statements providing more reliable and relevant information. LO 3 Understand how to account for retrospective accounting changes.

Retrospective Accounting Change: Long-Term Contracts Illustration: Denson Construction Co. teah memperhitungkan labanya dari kontrak konstruksi jangka panjang dengan metode kontrak selesai (Cost recovery method). Pada tahun 2011 perusahaan ini beralih ke metode persentase penyelesaian karena manajemen percaya bahwa pendekatan ini akan menghasilkan ukuran yang lebih tepat atas laba yang diperoleh. Untuk keperluan pajak (asumsikan tarif pajak yang berlaku adalah 40%), perusahaan menerapkan metode cost recovery dan merencanakan untuk terus menggunakan metode ini dimasa yang akan datang.

Illustration 22-1 LO 3 Understand how to account for retrospective accounting changes.

Data for Retrospective Change Illustration 22-2 Construction in Process 220,000 Deferred Tax Liability 88,000 Retained Earnings 132,000 Journal entry beginning of 2010 LO 3 Understand how to account for retrospective accounting changes.

Reporting a Change in policy Major disclosure requirements are as follows. Nature of the change in accounting policy; Reasons why applying the new accounting policy provides reliable and more relevant information; For the current period and each prior period presented, to the extent practicable, the amount of the adjustment: For each financial statement line item affected; and Basic and diluted earnings per share. Amount of the adjustment relating to periods before those presented, to the extent practicable. LO 3 Understand how to account for retrospective accounting changes.

Reporting a Change in policy Illustration 22-3 LO 3

Retained Earnings Adjustment Retained earnings balance is €1,360,000 at the beginning of 2009. Illustration 22-4 Before Change LO 3 Understand how to account for retrospective accounting changes.

Retained Earnings Adjustment Illustration 22-5 After Change LO 3 Understand how to account for retrospective accounting changes.

E22-1 (Change in policy—Long-Term Contracts): Cherokee Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during For tax purposes, the company employs the cost-recovery method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) LO 3 Understand how to account for retrospective accounting changes.

E22-1 (Change in policy—Long-Term Contracts): Instructions: (assume a tax rate of 35%) (b) What entry(ies) are necessary to adjust the accounting records for the change in accounting policy? (a) What is the amount of net income and retained earnings that would be reported in 2010? Assume beginning retained earnings for 2009 to be $100,000. LO 3 Understand how to account for retrospective accounting changes.

E22-1: Pre-Tax Income from Long-Term Contracts LO 3 Understand how to account for retrospective accounting changes.

Changes in Accounting Policy Statement of Retained Earnings
E22-1: Comparative Statements Income Statement Statement of Retained Earnings LO 3 Understand how to account for retrospective accounting changes.

Impracticability Perusahaan tidak boleh memakai penerapan retrospektif bila menemui salah satu kondisi berikut ini : Perusahaan tidak dapat menentukan pengaruh penerapan retrospektif Penerapan retrospektif memerlukan penetapan asumsi-asumsi mengenai rencana kerja pihak manajemen pada periode terdahulu Penerapan retrospektif memerlukan estimasi-estimasi signifikan terkait periode terdahulu, dan tidak disahkan secara objektif. LO 4 Understand how to account for impracticable changes.

Changes in Accounting Estimate
Examples of Estimates Piutang tak tertagih Keusangan persediaan Umur manfaat dan nilai sisa aktiva Periode yang menerima manfaat dari biaya yang ditangguhkan Kewajiban untuk biaya garansi dan pajak penghasilan Change in depreciation methods. Fair value of financial assets or financial liabilities. LO 5 Describe the accounting for changes in estimates.

Prospective Reporting Changes in accounting estimates are reported prospectively. Account for changes in estimates in the period of change if the change affects that period only, or the period of change and future periods if the change affects both. IASB views changes in estimates as normal recurring corrections and adjustments and prohibits retrospective treatment. LO 5 Describe the accounting for changes in estimates.

Change in Estimate Example
Illustration: Arcadia High School purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2010 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time. Required: What is the journal entry to correct prior years’ depreciation expense? Calculate depreciation expense for 2010. No Entry Required LO 5 Describe the accounting for changes in estimates.

After 7 years Equipment cost $510,000 Salvage value ,000 Depreciable base 500,000 Useful life (original) years Annual depreciation $ 50,000 First, establish NBV at date of change in estimate. x 7 years = $350,000 Balance Sheet (Dec. 31, 2009) Fixed Assets: Equipment $510,000 Accumulated depreciation 350,000 Net book value (NBV) $160,000 LO 5 Describe the accounting for changes in estimates.

Net book value $160,000 Salvage value (if any) ,000 Depreciable base 155,000 Useful life years Annual depreciation $ 19,375 Second, calculate depreciation expense for 2010. Journal entry for 2010 Depreciation expense 19,375 Accumulated depreciation 19,375 LO 5 Describe the accounting for changes in estimates.

Disclosures Companies should disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods. Companies need not disclose changes in accounting estimate made as part of normal operations, such as bad debt allowances or inventory obsolescence, unless such changes are material. LO 5 Describe the accounting for changes in estimates.

Correction of Errors Types of Accounting Errors:
A change from an accounting policy that is not generally accepted to an accounting policy that is acceptable. (dari non PABU menjadi PABU) Mathematical mistakes. Changes in estimates that occur because a company did not prepare the estimates in good faith. Failure to accrue or defer certain expenses or revenues. Misuse of facts (contoh : nilai sisa tidak dimasukkan ke dalam dasar penyusutan untuk metode garis lurus) Incorrect classification of a cost as an expense instead of an asset, and vice versa.

Correction of Errors Illustration: In 2012 the bookkeeper for Selectro Company discovered an error: Pada tahun 2011 perusahaan lalai mencatat dalam akun beban penyusutan sebesar $20,000 atas gedung yang baru dibangun. Penyusutan ini telah secara tepat dimaukkan dalam SPT pajak. Ilustrasi menyajikan laporan laba rugi Selectro tahun 2011. LO 6 Describe the accounting for correction of errors.

Correction of Errors Illustration: Selectro’s income statement for 2011 with and without the error. Illustration 22-17 Show the entries that Selectro should have made and did make for recording depreciation expense and income taxes. LO 6 Describe the accounting for correction of errors.

Correction of Errors Sebagai akibat dari kesalahan tidak memasukkan beban sebesar $20,000 di tahun 2011 : Pengaruh terhadap Laporan Laba Rugi: Beban penyusutan (2011) telah dinyatakan terlalu rendah $20,000 Beban pajak penghasilan (2011) telah dinyatakan terlalu tinggi sebesar $8,000 ($20,000 x 40%) Laba bersih tahun 2011 telah dinyatakan terlalu tinggi sebesar $12,000 (20, ) Pengaruh terhadap Neraca: Akumulasi penyusutan-bangunan telah dinyatakan terlalu rendah sebesar $20,000 Kewajiban pajak yang ditangguhkan telah dinyatakan terlalu tinggi sebesar $80,000 (20,000 x 40%)

Correction of Errors Illustration: Show the entries that Selectro should have made and did make for recording depreciation expense and income taxes. Illustration 22-18 Correcting Entry in 2012 LO 6 Describe the accounting for correction of errors.

Correction of Errors Illustration: Show the entries that Selectro should have made and did make for recording depreciation expense and income taxes. Illustration 22-18 Retained Earnings 12,000 Correcting Entry in 2012 LO 6 Describe the accounting for correction of errors.

Correction of Errors Illustration: Show the entries that Selectro should have made and did make for recording depreciation expense and income taxes. Illustration 22-18 Reversal Retained Earnings 12,000 Deferred Tax Liability 8,000 Correcting Entry in 2012 LO 6 Describe the accounting for correction of errors.

Correction of Errors Illustration: Show the entries that Selectro should have made and did make for recording depreciation expense and income taxes. Illustration 22-18 Retained Earnings 12,000 Deferred Tax Liability 8,000 Accumulated Depreciation—Buildings 20,000 Correcting Entry in 2012 Record

Summary of Accounting Changes and Errors
Illustration 22-23 LO 6

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