Definitions of accounting changes:
- Change in the structure of the economic entity - Modification of the number of entities that are consolidated or combined into an economic entity.
- Change in accounting estimate - Adjustment to the book value of an asset or a provision, resulting from current valuations as a consequence of changes in the economic environment. Change of particular rule - Modification to the application of a particular rule, either by choice or by imposition of the standard issuing body. Reclassifications - Changes in the presentation of the financial statements, which do not modify the amounts of net or integral profit (loss) or of the net change in equity.
Definitions of accounting changes:
- Errors in previously issued financial statements - Arithmetic errors, application of the standard, omissions or misuse of information. Impractical - Impossibility of retrospectively applying the effects of an accounting change or the correction of an error.
Accounting treatment
- Change in particular rule Reclassifications Application Retrospective error corrections Changes in the structure of the economic entity Application Changes in prospective accounting estimate
Hindsight application
Presentation rules
The effect of an accounting change or the correction of an error must be recognized in periods prior to the date this occurs, as if the new treatment adopted had always applied or the error had not occurred.
This implies adjusting the balances of assets, liabilities and capital from the beginning of the oldest period that is presented comparatively. Said adjustments, net of taxes, must be recognized in accumulated results.
In the period that occurs the application will be revealed:
- Causes that caused the adjustment. The effect attributable to each line of the affected financial statements. Statement that the information was adjusted. In reclassifications the affected items and their corresponding amounts.
Prospective application
Presentation rules
The effect of an accounting change must be recognized in the current period and in future periods.
Disclosure Rules
The nature and reasons for the change and its effects on financial reporting must be disclosed.
Example 1. The Company changes the cost allocation formula from UEPS to Average Costs (CP). We will take advantage of seeing the differences of UEPS, PEPS and CP, which finally reach the same result but the distribution is different, even in different accounting years.
Summary example 1: In the previous example we see how a Company changed its cost allocation formula, from last entries - first exits (UEPS) to average costs, so the accounting years 2011 and 2010 would not be comparable, therefore, We must revalue inventory and cost of sales, from this last year to average costs and, consequently, restructure the figures reported in the 2010 financial statements. In summary, costs are transferred from one year to another.
The NIF Bfinancieros, the latter can be reported as follows: -1 requires disclosure of the effects of the accounting change in the statements.
Example 2. A Company corrects its depreciation rates for transportation equipment, from 4 years to 10 years of useful life, since it considered it an error to have used a rate of 25% instead of 10%. Therefore, the annual and accumulated depreciation for the year and prior years was recalculated, obtaining the following summary table, which will proceed to correct the financial statements.
Summary example 2: In example 2, the Company considered it an error to have used a depreciation rate of 25% instead of 10%, so the effects of the accounting change were applied retrospectively. The accounting entry made in 2012 by the Company was: Accounting depreciation does not cease to be an estimate in useful lives and as such, if the Company had considered the modification of depreciation rates as a change in accounting estimate, the effects of the change Accounting would be done prospectively.
