Accounting in Practice: Change in Accounting Policy and Estimate, Prior Period Adjustments, and Financial Disclosures

This document discusses the change in accounting policy and estimate, prior period adjustments, and financial disclosures in accounting practice. It includes a detailed explanation of the scenarios that constitute a change in accounting policy and estimate, the impact of prior period adjustments on financial disclosures, and the importance of financial disclosures in reflecting the true financial state of a firm. The document also includes references for further reading.

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Running head: ACCOUNTING IN PRACTICE
ACCOUNTING IN PRACTICE
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Q.1...................................................................................................................................................2
Q.2...................................................................................................................................................2
Q.3...................................................................................................................................................3
Q.4...................................................................................................................................................4
References........................................................................................................................................5
Appendix..........................................................................................................................................6

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Q.1
The change in the measurement of the manufacturing equipment from cost basis to the
revaluation method is a change in the accounting policy. This is due to the fact that the change in
the accounting standards for better financial reporting or incorporating financial information is a
change in the accounting policy (Lara et al., 2016). Hence, this scenario should be regarded as
the change in the accounting policy. However, on the other hand the change in the measurement
of depreciation from straight-line method to diminishing value method renders a better
understanding regarding finding the exact numbers that also incorporates information regarding
the consumption of assets going forward (Libby, 2017). In this case the change in the process is
being done to reach a better estimate or exact number of a financial measurement and hence it is
a scenario of change in the accounting estimate and not change in the accounting policy.
Q.2
This is due to prior period adjustments which incorporates the rectifications made in the
previous periods. The profit or loss are the best representation of the financial state of a firm. It is
the aggregated numerical presentation where the loss and profits of previous years are being
coming forward together with current year activity based earnings (Zeff, 2016). Hence, if the
adjustments are done in the profit or losses then the adjustments also gets done in the year when
it was to be rectified as profit or loss is the same chain of financial performance of the firm upon
which it would have correct the errors if they were being found in the previous year (Kim &
Zhang, 2016). This prior errors causes due to oversights, fraudulence, misinterpretation of facts
and figures or due to mathematical mistakes or human errors. In the profit or loss statements is
the error will get corrected then it will seem like that the errors have never been occurred as the
errors are being corrected in the profit or loss chain of the present year in which its profit or loss

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is a reflection of the previous year’s profit or loss as business performance as a whole as a result
the subsequent periods will not reflect this errors in the financial disclosures
Q.3

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Q.4

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References
Kim, J. B., & Zhang, L. (2016). Accounting conservatism and stock price crash risk: Firm‐level
evidence. Contemporary Accounting Research, 33(1), 412-441.
https://onlinelibrary.wiley.com/doi/abs/10.1111/1911-3846.12112
Lara, J. M. G., Osma, B. G., & Penalva, F. (2016). Accounting conservatism and firm investment
efficiency. Journal of Accounting and Economics, 61(1), 221-238.
https://www.sciencedirect.com/science/article/pii/S0165410115000506
Libby, R. (2017). Accounting and human information processing. In The Routledge Companion
to Behavioural Accounting Research (pp. 42-54). Routledge.
https://content.taylorfrancis.com/books/e/download?dac=C2014-0-38110-
7&isbn=9781317488002&doi=10.4324/9781315710129-11&format=pdf
Zeff, S. A. (2016). Forging accounting principles in five countries: A history and an analysis of
trends. Routledge. https://content.taylorfrancis.com/books/download?dac=C2015-0-
62988-4&isbn=9781317352259&format=googlePreviewPdf