It is somewhat more effective to reconcile income under the old and
new accounting methods than to provide a straightforward, non-
quantitative statement of the accounting change. "Secondly,
accounting changes have multi-period effects on investor judgments,
and that additional subsequent-period disclosures mitigate those
effects" (Emmett, 2017). Investors can benefit greatly from
multiperiod disclosures of accounting changes. Changing accounting
methods for particular transactions and disclosing the effects of
those changes have the greatest impact on financial statement
analysis. These changes can impact daily operational decisions as well
as investments. Generally, financial statement analysis assumes that
financial statements are consistent and comparable over time and
between entities within a grouping. Accountancy changes may lead
to inconsistencies. Since change is inevitable, the challenge is to
minimize the change and make investors or potential investors
comfortable with the change. Not only are investors interested in the
results, they also want to know where and how those results came
about. It is possible that one change doesn't matter in the current
period, but in the long run, it may be regarded as a serious problem.
Changes in accounting principles differ from changes in accounting
estimates or reporting entities. In contrast, accounting principles
influence methods, while estimates generally refer to specific
recalculations. Changing accounting principles can make financial
statements confusing and difficult to read for investors and other
users. Corrections look very much like error corrections, which are
often interpreted negatively. It would be in the best interests of both
parties to record any changes in accounting principles early in order
to reduce unnecessary rework as well as improve follow-up work.
a Emmett, S. A., Nelson, M. W. (2017). Reporting accounting changes
and their multi-period effects. Science Direct. Received from:
https://www-
sciencedirectcom.ezproxy.snhu.edu/science/article/pii/S036136821
7300144?via%3Dihub
