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Chapter 22: Q10Q. (page 1306)

Parsons Inc. has proposed a change from one inventory accounting method to another for financial reporting purposes. The auditor indicates that a change would be permitted only if it is to a preferable method. What difficulties develop in assessing preferability?

Short Answer

Expert verified

An auditor is a person who verifies and checks financial information. The companies and auditors face the difficulty of wasting resources in the process of assessing the preferability of the method.

Step by step solution

01

Definition of Auditor

The auditor is the person who has the authorization to review and verify the accuracy of the financial statements of the company

02

Difficulties faced

The company or the auditor of the company may face various difficulties in assessing preferability, such as:

They have to consider the cost and benefits of each method, which requires them to prepare financial statements using various methods, which increases the cost and requires so much time.

This leads to the wastage of the company's resources, which can be used in any other business operation of the business.

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Most popular questions from this chapter

Discuss and illustrate how a correction of an error in previously issued financial statements should be handled.

State how each of the following items is reflected in the financial statements. (a) Change from FIFO to LIFO method for inventory valuation purposes. (b) Charge for failure to record depreciation in a previous period. (c) Litigation won in current year, related to prior period. (d) Change in the realizability of certain receivables. (e) Write-off of receivables. (f) Change from the percentage-of-completion to the completed-contract method for reporting net income.

Define a change in estimate and provide an illustration. When is a change in accounting estimate effected by a change in accounting principle?

Identify and describe the approach the FASB requires for reporting changes in accounting principles.

Access the glossary (鈥淢aster Glossary鈥�) to answer the following.

(a) What is a change in accounting estimate?

(b) What is a change in accounting principle?

(c) What is a restatement?

(d) What is the definition of 鈥渞etrospective application鈥�?
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