“An accounting change is a change in accounting principles, accounting estimates,
or the reporting entity. A change in accounting principles is a change in a method used,
such as using a different depreciation method or switching between LIFO (Last In, First
Out) to FIFO (First In, First Out) inventory valuation methods.” (Kenton, 2021) I think
that Companies should have to disclose the impact of changes in subsequent years, even if
they do have multiperiod impacts because investors and other people to look at a
company’s financial statements should be able to know the current status of their financial
health. Also, if the Company does not report any changes, then they could potentially be
making false claims about how well the company is doing.
If a company has a multi-period impact, the investors will want to be privy to this
information because it could give them a better understanding about if the company seems
like it is profitable and if it will continue to be in the future, which will be the deciding
factor in whether they chose to invest or not. “Security analysts, portfolio managers, and
activist investors watch carefully for changes in accounting principles, as these are often
early warning signs of deeper issues.” (Kenton, 2021) Even though accounting changes
can happen often or regularly depending on certain circumstances, it is still something that
should be reported, and the company should be transparent about their financial health due
to potential investors that could be reviewing that information.
References
Kenton, W. K. (2021, July 31). What Is an Accounting Change? Investopedia.
https://www.investopedia.com/terms/a/accounting-change.asp
