Wiley GAAP 2008

Perspective and Issues

Under US GAAP, management is granted the flexibility of choosing between or among certain alternative methods of accounting for the same economic transactions. Examples of the availability of such choices are provided throughout this publication, in such diverse areas such as alternative cost‐flow assumptions used to account for inventory and cost of sales, different methods of depreciating long‐lived assets, and varying methods of identifying operating segments. The professional literature (in the areas of accounting principles, auditing standards, quality control standards, and professional ethics) is emphatic that, in choosing among the various alternatives, management is to select principles and apply them in a manner that results in financial statements that faithfully represent economic substance over form and that are fully transparent to the user.

Changes in accounting can be necessitated over time due to changes in the assumptions and estimates underlying the application of accounting principles and methods of applying them, changes in the principles defined as acceptable by a standards‐setting authority, or other types of changes.

The accounting for, and disclosure of changes in accounting for, given transactions are issues that have confronted the accounting profession for many years. The matter is particularly sensitive because of the impact on financial statement analysis of differing methods of accounting for specific transactions, and of disclosing ...