CHANGES IN ACCOUNTING PROCEDURES

CHANGES IN ACCOUNTING PROCEDURES: A DISCUSSION OF EXAMPLES

This research considers changes made in accounting procedures by four firms. Both the nature and the effects of these changes are discussed. The Accounting Practice Board (APB) Opinion 20 holds that a change in accounting procedures initiated by a firm is not justifiable unless a firm can demonstrate that such a change involves the use of an alternative procedure that is clearly preferable in the context of fair and accurate financial reporting. Such a change in accounting procedures might, as an example, involve a change in the method for the valuation of inventory from FIFO (first-in-first-out) to LIFO (last-in-first-out). This type of change would not only require a justification of desirability on the part of the firm, but would also require the approval of the Internal Revenue Service (IRS).

In other instances, changes in accounting procedures may be prompted by changes in law which provide firms with opportunities previously unavailable. As an example, a legal ruling that some retirement fund assets are the property of the funding firm enabled some firms to change accounting procedures in order to recognize income on the earnings of such assets. In yet other instances, the federal government may mandate actions on the part of firms that require accounting changes. An example of a mandated action requiring an accounting change was the federal requirement implemented in 1992 requiring that

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Category: Business - C