How Should a Change from One Generally Accepted Accounting Principle

question 42

Multiple Choice

How should a change from one generally accepted accounting principle to another accepted principle be handled in a third-quarter income statement?

• A) Retrospectively restate the first-quarter income statement, net of income taxes, as though the change occurred at the beginning of the year.
• B) Postpone recording of the change to the annual income statement.
• C) Record the change in the third-quarter income statement, net of income taxes.
• D) Adjust financial statements for each prior period presented to reflect the effects of the new principle in those reported periods.
• E) These changes are prohibited by GAAP.

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Definitions:

Performance Gap

The difference between actual performance and desired or expected performance, often identified as an area for improvement.

Significant Drop

A substantial decrease or decline in quantity, quality, or value within a specific context or period.

Theory E Change

An organizational change strategy that focuses on creating economic value often at the expense of organizational culture and employee well-being.