Changes in Accounting for Changes

Compare to the last century, it is visible and obvious that all things change. People,
infrastructure, knowledge, education, culture, arts, discoveries and of course businesses had
evolve. Nowadays, businesses have sprouted everywhere that creates a big competition.
Accompanied with this growth is a need for more detailed and up to date financial statements. I
agree with the author that changes in accounting and financial reporting are inevitable. A
business in order to prosper must cope up with these changes, must grab all opportunities and
must design tools and make decisions for the prosperity of the business.
It is also true that when changes are necessary, changes for measurement basis or changes of
accounting policy for example must be addressed and it is up to the manager and CFO to
decide on how to reflect them on the financial statements whether to treat them prospectively or
retrospectively or to ignore changes if it is immaterial and impractical to do so. Under statement
no.154 of the Accounting Principles Board, all voluntary changes in principle now must be
retrospectively applied to previous-period financial statements, unless such application is
impracticable. Impractical conditions exists if a company is unable to apply the new principle
after making every reasonable effort or if CPAs cannot document assumptions about
managements intent in the prior periods or gather estimates needed to apply the principle in
those periods. I agree also that treatment of these changes must be made in accordance with
the Philippine Financial Reporting Standards or must apply another treatment if such will give
the end users a better understanding on the financial statements. It is important to bear in mind
that a change in accounting principle results when an entity adopts a generally accepted
accounting principle different from the one that is used previously.
I agree also that masking error connection as a voluntary change in principle will result to
misapplication and will also mislead financial statement readers since error corrections usually
raise concerns, while most readers view principle changes as a good thing. Therefore preparers
and auditors should be familiar with the differences between changes in principle and error
correction and should exercise wise judgements in order to come up with a better financial
statements that will really portray the true happenings in the company.