Question ID: ICMA 19.P2.068

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  • #208106
    Khaled
    Participant

    I belive that the answer of this Q shoould be :
    – The change should be accounted for as a change in accounting Principal, that is, prospectively, in the current period and future periods.
    Instead of
    – The change should be accounted for as a change in accounting estimate, that is, prospectively, in the current period and future periods.

    this what i understand from Q Question ID: CMA 0697 P2 Q25 and your handbook please correct me if i am wrong.

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  • #208122
    Lynn Roden
    HOCK international

    Hello Khaled,

    A change in accounting principle is not accounted for prospectively, unless it is a change of depreciation (or amortization or depletion) method. All changes of accounting principle, except for a change of depreciation method, are accounted for retrospectively.

    Your CMA Part 2, Vol. 1 book explains it as follows:

    “In some cases, a change in accounting estimate is effected by (brought about by or caused by) a change in accounting principle.

    “A change from one method of depreciation, amortization, or depletion for long-lived, nonfinancial assets to a different method is such a change. For example, a change from straight-line depreciation to an accelerated depreciation method is a change in depreciation method. The new depreciation method is adopted in partial or complete recognition of a change in the estimated future benefits inherent in the asset, the pattern of consumption of those benefits, or the information available to the entity about those benefits.

    “In the case of a change in depreciation method, the effect of the change in accounting principle or the method of applying it is inseparable from the effect of the change in accounting estimate. A change in the method of depreciation that is related to the continuing process of obtaining additional information and revising estimates is accounted for as a change in accounting estimate, not as a change in accounting principle.

    “However, because it also involves a change in accounting principle, a change of depreciation method must be justified as preferable from the perspective of financial reporting in the same way as other changes in accounting principles must be justified.”

    You referenced CMA 0697 P2 Q25. That question is answered the way it is because a change of depreciation method is actually a change of accounting principle. However, it is not accounted for the way a change of accounting principle is accounted for, because a change of accounting principle is accounted for retrospectively. A change of depreciation method is accounted for the way a change of accounting estimate is accounted for, that is, prospectively. In CMA 0697 P2 Q25, the best answer is that it is an accounting principle change, because it is a change of accounting principle. 

    ICMA 19.P2.068 is a different question. ICMA 19.P2.068 is asking how the change in accounting principle should be accounted for. The best answer to ICMA 19.P2.068 is that it should be accounted for as a change in accounting estimate, because that is the correct way to account for it.

    Lynn

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