Page 22 - FINAL CFA I SLIDES JUNE 2019 DAY 7
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Session Unit 7:
24. Understanding Income Statements
LOS 24.f: Describe the financial reporting treatment and analysis of non-recurring items (including
discontinued operations, unusual or infrequent items) and changes in accounting policies.
Changes in Accounting Policies, p55
A change in accounting principle –from one GAAP/IFRS method to another (e.g., a change in
inventory accounting from LIFO to FIFO); requires retrospective application to enhance comparability.
A change in accounting estimate result from change in management’s judgment, usually due to new
tanties
information (e.g. change the estimated useful of an asset from 3 to 5); requires prospective application
.
CFA Implications, p56
Does not affect cash flows but may impact operating results!
Prior-period adjustment results need to correct an accounting error in prior AFS; made
by restating results for all prior periods.
Disclosure of the nature of the adjustment and its effect on net income is also required.
CFA Implications, p56 They usually involve errors or new accounting standards and do not
typically affect cash flow; may also reflect weaknesses in the firm’s
internal controls.
