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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Accounting Changes

A change in accounting principle results from adoption of a generally accepted accounting principle different from the one previously used for reporting purposes. The term accounting principle includes not only accounting principles and practices, but also the methods of applying them. Changes in accounting principles (or the method of applying them) must be justified by those who make the change (the entity's management), unless they are made in order to comply with a FASB position. (See Chapter 5 for a detailed discussion of accounting changes.)

Example of disclosure for a change in accounting principle

Table . 3-1: ABC Company Income Statements For the Years Ended December 31, 2008 and 2007
 20082007
Sales$xxx$xxx
(Details omitted)________________
Income before cumulative effect of a change in accounting principle$xxx$xxx
Cumulative effect on prior years (to 12/31/06) of changing to (change described) (net of $_tax)xxx________
Net income$xxx$xxx
Per share amounts (simple capital structure)
Income before cumulative effect of a change in accounting principle$xxx$xxx
Cumulative effect on prior years (to12/31/06) of changing to (change described)xxx________
Earnings per common share$xxx$xxx
Pro forma1 amounts assuming the new (change principle) is applied retroactively:
Net income$xxx$xxx
Earnings per share$xxx$xxx
[1]

[1] The pro forma amount above is not to be confused with the pro forma income numbers that the SEC has expressed concern about, and which is addressed, inter ...

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