How do companies disclose the effects of changes in accounting policies or estimates in their interim financial statements?
When a company changes its accounting policies or estimates, it must disclose the effects of those changes in its interim financial statements. Here are some ways that companies may disclose the effects of changes in accounting policies or estimates:
- Note disclosures: The company may provide detailed note disclosures in its interim financial statements, explaining the nature of the change, the reasons for the change, and the impact of the change on the company's financial position, results of operations, and cash flows. The note disclosures may also include any significant assumptions or uncertainties that were used in making the estimate.
- Restatement of prior periods: In some cases, the company may choose to restate prior period financial statements to reflect the impact of the change in accounting policy or estimate. This would require the company to adjust the opening balances of the affected accounts in the earliest period presented.
- Adjustments to current period results: The company may choose to reflect the impact of the change in accounting policy or estimate in the current period results, without restating prior period financial statements. This may involve adjusting the current period financial statements to reflect the impact of the change on the current period.
- Disclosure of the effect on future periods: If the change in accounting policy or estimate will have a significant effect on future periods, the company may provide disclosures about the expected impact of the change on future financial statements.
It's important to note that companies must follow the specific accounting standards and regulations applicable to their situation when disclosing the effects of changes in accounting policies or estimates in their interim financial statements. Companies may also need to provide additional disclosures or explanations to help users of the financial statements understand the impact of the change on the company's financial performance and position.