ACCOUNTING CHANGE Meaning and
Definition
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Accounting change refers to any modification made in an organization's accounting policies, principles, estimates, or procedures that have an impact on the presentation of its financial statements. It could involve altering the method of recording, valuing, or classifying financial transactions, and ultimately affects the financial results and position of the company.
An accounting change can occur due to various reasons such as a change in accounting standards or regulations, a shift in management's judgment or discretion, or a modification in a company's business operations. These changes are essential for an organization to accurately reflect the economic realities and communicate financial information effectively to stakeholders.
There are three main types of accounting changes: changes in accounting principles, changes in accounting estimates, and changes in reporting entities. Changes in accounting principles occur when a company adopts a new accounting standard or departs from an existing one. Changes in accounting estimates involve revisions made to estimates of financial values, often based on new information or improved methodology. Changes in reporting entities occur when a company is restructured, reorganized, or undergoes a merger or acquisition, resulting in a change to the entities included in the financial statements.
Accounting changes are typically disclosed in the financial statements through explanatory notes and are often accompanied by retrospective or prospective adjustments to ensure comparability and consistency with prior periods. Proper documentation and disclosure of accounting changes are vital to provide transparency and aid users in understanding the financial implications and effects of such modifications.
Etymology of ACCOUNTING CHANGE
The word "accounting" is derived from the Old French word "aconter" or "conter", which means "to count" or "to calculate". It originated from the Latin word "computare", which has a similar meaning. "Change" can be traced back to the Old English word "cang", which means "exchange" or "modification". In the context of accounting, "change" refers to a modification or alteration in accounting practices, principles, methods, or policies. So, "accounting change" simply refers to a modification or shift in the way accounting is done.
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