Accounting for Changes and Errors in Reporting

ACCOUNTING CHANGES
Name
Institution Affiliation
MEMORANDUM
TO: Conor and Martin
FROM: Accountant
DATE: 25 July 2018
SUBJECT: ACCOUNTING CHANGES
The accounting department of any organization should have a set of standards. This helps in avoiding errors. The accounting aspects of every department need to be reported appropriately to the respective stakeholders. This makes financial reporting a crucial task in organizations. Financial reports consist of financial statements, annual reports, prospectus and managerial analysis. CMC expansion into the global market needs a lot of preparation. The most important aspect is the financial reporting standards. Making changes in accounting in order to be efficient is important.
Accounting changes may include the accounting principle change, estimate change and reporting entity change. Change in the accounting principle involves the change from one accounting principle to another. An estimate change occurs when additional information is obtained. Accounting changes are normal scenarios in business. However, any changes need to be reported immediately. Companies are not allowed to make any changes to previous financial statements. The changes should be applied retrospectively. The presented financial statements should also show the accounting principle change. When making a change in the accounting principle, CMC has to consider a few things. Once a new accounting principle is implemented, it does not affect or change other transaction of the same type (Wielhouwer & Wiersma, 2017).

For a better understanding and analysis of the accounting, it is advisable to use a consistent accounting principle.
Depreciation is calculated in either straight line or accelerated methods. The straight line uses an equal amount on the equipment annually. In the accelerated method, the depreciation is faster at the beginning of the equipment use and slower nearing the end of the equipment life. The depreciation of equipment is always recorded in the balance sheets. The amount is deducted from the net income. Using the accelerated depreciation lowers the net income. Most companies change accounting principles in order to boost their earnings. After going public, CMC can change its accounting principle depending on the circumstances. This is majorly affected by the tax reporting. GAAP is a principle-based financial reporting standard. Since it is strict in its implementation, it is quite hard to make accounting changes. However, IFRS is easier to make accounting changes. This because it is a decision based financial reporting standard. IFRS is an accepted standard all over the world. It is therefore easier for CMC to use it because of its market expansion.
References
Wielhouwer, J., & Wiersma, E. (2017). Investment Decisions and Depreciation Choices under a Discretionary Tax Depreciation Rule. European Accounting Review, 26(3), 603-627. doi: 10.1080/09638180.2017.1286250