Are accounting changes permitted in financial statements?
Answer to Problem 21.1Q
Accounting changes are allowed in financial statements of company only up to a certain extent and must depict true and accurate financial position of the company.
Explanation of Solution
Accounting Change:
Accounting change includes the change in accounting method, accounting principle or standard. It is the change in the method of calculation of profit and loss statement of company. For example: A company changes its method from effective interest rate method to straight line method this is called the Accounting change.
- Accounting change is permitted but only up to a certain extent and these changes must be justified to the management of company.
- These changes must depict true and accurate financial position of the company.
- These changes should be disclosed to the users, investors, authorities so that they can compare and analyze the financial statement of company.
- Also, Changes are in limit not reoccurring every time.
Hence, accounting change ispermitted in financial statements.
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