Financial statements form a vital part of the current financial position
of any company. It is important for the firms to prepare the financial
reports in order to attract more investors and provide them with a
clear idea relating to the financial position of the company. When
preparing the financial statements, it is important to ensure proper
alignment with the different standards such as IFRS and GAAP. The
financial accounting standards make it essential for the companies to
prominently and clearly state or disclose the impact of accounting
changes on their financial statement in the particular year that the
companies adopt the change (Emett & Nelson, 2017). However, the
companies may not be required to disclose information relating to the
accounting changes in the subsequent years after the change. The
change will affect the financial statement in the subsequent years.
But it is not mandatory for the companies to share the information
relating to the change or impact.
• After reviewing the article ‘Reporting Accounting Changes and
Their Multi-period Effect’, it can be said that the companies are
required to report the impact of changes expected in
subsequent years, if they have multi-period impacts. It is
because reporting the impact of changes will enable the
investors to get knowledge of the accounting changes.
Investors learn about accounting changes and tend to store the
information in their memory. However, after some time, they
forget the accounting changes of the company. This results in
the failure to make the required adjustments to the valuations in
the subsequent years (Emett & Nelson, 2017). On the other
hand, when the companies report the impact of changes in the
subsequent years, the investors will be able to capture the
complete accounting changes of the company. They will be in a
better position to make an accurate evaluation of the stock
price of the company.
• The multi-period disclosure of accounting changes of the
company will indeed be useful to the investors as well as the
other users. The evidence clearly shows that the investors, as
well as analysts of a company, will be able to consider the
impacts of accounting changes on a company better only when
they are provided with proper information relating to the
change. The information relating to the change must be
prominently and clearly presented by the company in the
financial statements (Emett & Nelson, 2017). Consistently
keeping the investors and other users informed about the
accounting changes of the company will help them make better
decisions.
References
Emett, S. A., & Nelson, M. W. (2017). Reporting accounting changes
and their multi-period effects.
Accounting, Organizations and Society
,
57
, 52-72.
