Ifrs and Fasb Comparison on Accounting Errors

Jenna Brooks Summary on Research for Accounting Changes and Error Analysis

Companies have always faced issues of how to reflect changes in accounting methods and error corrections in financial statements. A change in accounting principle results when an entity adopts a generally accepted accounting principle different from the one it used previously (Hall 2007). A presumption exists that an accounting principle once adopted shall not be changed in accounting for events and transactions of a similar type (Financial Accounting Standards Board). It is preferred that consistent use of the same accounting principle from one accounting period to another is used because it enhances the utility of financial statements for users by facilitating analysis and understanding of comparative accounting data. Consistent use provides a dimension of high-value financial statements that assist in analysis and enhance comparability (Bloom and Fuglister 2006). However, there are times when changes are needed. A change in accounting principle is not considered at the initial adoption of the principle or modification of an accounting principle necessitated by transactions (Financial Accounting Standards Board). A company is only allowed to change an accounting principle if the change is required a newly issued codification update or the entity can justify the use of an allowable alternative accounting principle on the basis that it is preferable (Financial Accounting Standards Board). Any of these may require an entity to change an accounting principle. Such a requirement is sufficient justification for making a change in accounting principle. The burden of justifying other changes in accounting principle rests with the reporting entity making the change (Williams and Carcello, FASB Statement No. 154, Accounting Changes and Error Correction. 2005).

The accounting for changes in estimates and accounting principle is similar between GAAP and IFRS. They both...