I think it’s important to report any major impact of a change that
affects the financial statements. These changes can affect how
investors see the business and this will determine if they would want
to invest in the future of the company. From what I gathered from the
article there are two important conclusions, for one, a disclosure that
reconciles income under the old and new accounting method is rather
more effective than a simple non-quantitative disclosure of the
accounting change would be. Two, accounting changes have multi-
period effects on investor decisions, and with that added subsequent-
period disclosures alleviate those effects (Emett, 2017). Therefore, in
my opinion, I believe the multi-period disclosure of accounting
changes can be more useful to investors than other users.
Firstly, due to the impact on financial statements analysis of contrary
methods of accounting for a certain transaction, as well as, disclosing
the effects of the changes; this impact could have a great influence
on both investing and operational decisions. Also, any kind of
accounting change can potentially create inconsistency. Therefore,
because certain changes are avoidable, the challenge is to disclose
the effects of the changes in a way that is most easy to understand by
other users of financial statements, who create several adjustments
of their own to make information equivalent for analysis reasons.
With that said, investors would like to have knowledge of all findings
and not bits and pieces in order for them to make a suitable and
sound decision.
Secondly, since changing an accounting principle is unlike changing an
accounting estimate or reporting entity; accounting principles will
impact the methods used, while an estimate refers to a particular
recalculation. Changes in accounting principles can be difficult to
understand and read for investors and other users of financial
statements because the adjustments can appear identical to error
corrections and often have negative interpretations. This is why it is
best to record any changes in accounting principles early on to reduce
any dilemmas, as well as it can enhance the success of any follow-up
work.
References
Emett, S. A., & Nelson, M. W. (2017, April 14).
Reporting accounting
changes and their multi-period effects
. Accounting, Organizations
and Society. Retrieved June 12, 2022, from
https://www.sciencedirect.com/science/article/pii/S036136821730
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