I think companies should be expected to report the impact of changes expected
in subsequent years, especially if they have multiperiod impacts as it helps
estimate the effect in post-change periods. The lack of reporting impact of
changes expected in subsequent years leaves investors vulnerable to
inconsistency and non-comparable accounting. With the requirements GAAP
already has for companies and their reporting standards, I think expected
changes should also be part of these reports. It lets investors know what
they’re getting into. This is shown through the experiment discussed in the
article. Results show that investors who did NOT get multi-period disclosure
about change were forgetful. The experiment also explained the point that
qualitative reconciliation and non-quantitative disclosure help with changes in
accounting and judgement. The article discloses, “Investors could benefit from
enhanced disclosures in post-change periods.” Investors want as much
reliability and stabilization in their investments as possible, and the more open
and honest a company is with their current financials, predicted changes, and
projected differences, the more likely investors will be to engage. It creates a
sense of security that may otherwise not be present. Multi-period accounting
change disclosures help to highlight strengths and weaknesses within a
company, and it helps investors get the bigger picture. Otherwise, investors
may see earnings as artificially inflated and consequently adjust earnings
downward. With multiperiod disclosure of accounting changes, this can be
prevented and more transparency is present.
Emett, S., & Nelson, M. (2017). Reporting accounting changes and their
multi-period effects. Science Direct. Retrieved June 9, 2022 from:
https://www-sciencedirect-
com.ezproxy.snhu.edu/science/article/pii/S0361368217300144?via%3Dihub
