Accounting changes are inevitable; we live in a constantly changing
world due to globalization, digitalization, and consumer preferences.
There are three accounting changes: change in accounting principles,
change in accounting estimates, and change in reporting an entity. All
accounting changes require full disclosure in the footnotes, but only a
change in accounting principle must restate past statements (Kenton,
2022). Should companies be expected to report the impact of
changes in subsequent years if they affect multiple periods? GAAP
does not require them, but I think they should be required. The way
it's set up right now, changes only show comparability on how
changes affect current-period financial statements. The article
"Reporting Accounting Changes and Their Multi-period Effects"
shows that as time goes on, investors forget about including the
change, which could significantly impact their investment decisions. If
multi-period changes were disclosed in future statements, this could
help investors see why the change was made and how it affects the
company financially.
a a Accounting changes always carry a chance of creating
inconsistencies. Disclosing changes in the footnotes and restating
financial statements helps investors and others more easily
understand why the change was made and how it affects the
company's financials to make a more thorough analysis. The article
shows that investors forget over time, and disclosure helps but
restating financial statements makes it easier for them to make
decisions. So it makes sense that disclosing multi-period accounting
changes would only add to assisting investors in creating a more
thorough analysis.
Reference
Kenton, W. (2022, February 8).
What is an accounting change?
Investopedia. Retrieved June 9, 2022, from
https://www.investopedia.com/terms/a/accounting-
change.asp#:~:text=Key%20Takeaways-
,An%20accounting%20change%20is%20a%20change%20in%20acco
unting%20principles%2C%20accounting,to%20FIFO%20inventory%
20valuation%20methods.
