I do believe that companies should be expected to report the impact
of changes expected in subsequent years. In order for investors to
have the most accurate data to analyze a company's financials and
create a proper forecast they will need to know if any changes were
made that impact the statements. If a company changes their
accounting approach for reporting pension expenses from smoothing
to fair value this can effect the appearance of growth. As the article
describes, the smoothing approach amortizes the expense over years
and this results in relatively low but stable performance over the
years. Using the fair market approach the expense is recognized in
prior periods making those periods show a reduced income for those
periods, but then increased growth and higher income in the
following periods. (Emett & Nelson, 2017)
a Multiperiod disclosures regarding accounting changes would be
very useful to investors and other users. As the research in the article
states, investors are more common to forget the change as time goes
on. In their experiment the participants that received 1st period
reconciliations only showed a large increase in perceived value of the
company. They find that people that received that first reconciliation
only, soon reverted to similar thoughts of the people that received no
change discloser at all because over time they forgot about the
change that occurred. Participants that received a reconciliation in all
periods had a more gradual increase in stock price value because they
had the reminder each time they were analyzing the financial
statements.
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
