A Comparative Analysis Of Accounting Policy Change And Accounting Error Correction

The accounting standards for enterprises, accounting policies, accounting estimates change and accounting error correction (hereinafter referred to as "guidelines"), further regulate the accounting policies, accounting estimates change and accounting error correction accounting and related information disclosure, and improve the relevance and reliability of accounting information.

There are many similarities between accounting policy change and accounting error correction, but the two are essentially different behaviors. Only by correctly recognizing their differences can they treat the related accounting matters differently and adopt reasonable handling methods respectively.

The following are the differences between the two.

The meaning of accounting policy change is "guidelines". It points out that accounting policy refers to the specific principles that enterprises abide by in accounting and the specific accounting methods adopted by enterprises.

Under certain circumstances, an enterprise can change the same paction or item from the original accounting policy to another accounting policy, which is the change of accounting policy.

According to the regulations, enterprises must comply with one of the following requirements for changing accounting policies: 1. requirements of administrative laws and regulations, such as laws or accounting standards; 2., such changes can provide more reliable and more relevant accounting information on financial condition, operating results and cash flow changes.

In addition, the "guidelines" also point out that the following circumstances do not belong to changes in accounting policies: (1) pactions or events occurring in the current period are essentially different from previous ones and adopt new accounting policies.

For example, an enterprise has been leasing equipment into production through operating lease, but from this year, new leasing equipment will be leased by financing.

Therefore, the enterprise adopts the accounting treatment method of financing lease this year to record and report the rental and use of equipment.

Because of the essential difference between operating lease and financial leasing, this change does not belong to accounting policy change.

For example, for the first time, an inter annual labor supply contract project was adopted by enterprises, and the percentage of completion method was adopted to confirm the income at the end of the year.

For enterprises, although the new revenue recognition method has been adopted, this practice does not belong to accounting policy change.

For example, the expenses incurred in purchasing office supplies are directly included in the management fee account.

Starting from this stage, the enterprise decides that all office supplies purchased should be credited to the supplies account first and then pferred to the relevant expense account after being used.

Since office expenditure is a sporadic expenditure of enterprises, and this change has little impact on assets, expenses and profits, it is a matter of no importance. Therefore, such coup don't need to be specifically disclosed as the content of accounting policy changes.

Two, the meaning of accounting error correction. In accounting, due to various reasons, errors in accounting recognition, measurement, recording, etc., enterprises should distinguish different situations and adopt different accounting methods to handle them. This behavior is accounting errors.

In daily accounting, there are common situations in which accounting errors arise: first, accounting policies that are not permitted by administrative laws and regulations such as laws or accounting standards.

Two, account classification and calculation errors.

The three is the error of accounting estimation.

The four is the final accruals and deferred items have not been adjusted.

The five is to omit the completed paction.

Six is the negligence or misunderstanding of facts.

The seven is to confirm the unrealized income or uncertain income already realized in advance.

Accounting errors, as long as they happen, will have adverse effects on accounting information. According to the degree of influence, accounting errors can be divided into major accounting errors and non major accounting errors.

Major accounting errors refer to the accounting errors that enterprises find to make accounting statements no longer reliable. Their characteristics are that the amount of errors is relatively large enough to affect the users of accounting statements to make a correct judgement on the financial condition and operating results of enterprises.

According to the principle of importance, if an error accounts for more than 10% of the amount of pactions or events, it is considered a major accounting error.

Non major accounting errors refer to accounting errors which are not enough to affect the users' correct judgement of financial status and operating results.

In accounting practice, the two accounting errors are handled in the same way.

Three, the difference between accounting policy change and accounting error correction is 1.. The reasons for accounting policy change are mainly two points: first, laws and accounting standards and other administrative rules and regulations require changes.

This mainly refers to the formulation of a new accounting system or accounting standards, revision of the original accounting system or accounting standards, so as to change the accounting policy.

If the state issued a unified accounting method for the accounting treatment of value-added tax, enterprises should promptly deal with the relevant VAT items in accordance with the new method.

Second, after changing the accounting policy, the information provided by the company will be more reliable and relevant.

Enterprises can change their accounting policies according to the specific economic environment and objective circumstances at that time.

If the enterprise originally adopted the advanced first out method to calculate the inventory turnover cost, because of the inflation, the use of the forward first out method can reflect the current price of the stock more truly, and then match the income of the market price.

For example, enterprises have been using direct pfer method to calculate bad debts. Because of the recent economic environment changes, the possibility of changing the accounts receivable into bad debts is increasing. The continued use of direct pfer method to calculate the bad debts will increase the assets and profits of a certain accounting period.

There is only one reason why the accounting errors change together. There is an error in accounting recognition, measurement and recording.

No matter whether the error occurs in the current or early stage of the error, the accounting error correction should be corrected in the current period when the accounting error is found.

Generally speaking, the causes of accounting errors can be classified into three categories: first, the errors in accounting policies.

For example, in accordance with the uniform accounting system of the state, borrowing costs incurred for the purchase of fixed assets should be included in the profits and losses of the current period after the fixed assets reach a predetermined usage state, and the capitalization of the cost of the purchased fixed assets should be included in the accounting policies.

Second, errors in accounting estimates.

Because of the uncertain factors in economic operation, enterprises often need to make estimates in accounting.

But for various reasons, accounting estimates may be wrong.

For example, the state stipulates that an enterprise can make provision for bad debts according to a certain proportion of the balance of accounts receivable at the end of the year. Enterprises may make more or less provision for bad debts at the end of the year, thereby affecting the calculation of profits and losses.

Third, other mistakes.

In accounting, enterprises may have other errors besides those two errors.

For example, the wrong direction of credit, misaccounting, missing pactions or events, ignorance and abuse of facts, and so on.

From the above analysis, we can see that the causes of accounting errors may be related to errors in accounting policies, or that errors in accounting policies are one of the causes of accounting errors.

Even in accounting errors caused by errors in accounting policies, there are still differences between accounting policy changes and accounting errors correction: accounting policy changes occur in the course of the replacement of two legal accounting policies, accounting errors are corrected as legitimate accounting policies.

The change of accounting policies in 2. different areas will affect the overall accounting pactions or events.

If the investment criterion adopts a new accounting policy for short-term investment valuation, that is, the lower cost and market price should be adopted. If the enterprise used the cost accounting before, the enterprise should compare the cost and market price of all short-term investments, and choose the lower ones as book value, which will have an impact on the book value of the whole short-term investment.

However, because a short-term investment does not cause an accounting error at the expense of the cost and market price, it only needs to compare its cost and market price for the short-term investment. Therefore, accounting error correction may only affect the book value of the investment.

Generally speaking, accounting policy changes may involve multiple accounting items, and the scope of impact is large. Accounting error correction involves only the adjustment of individual accounting items, with a relatively small impact.

Of course, accounting errors sometimes exceed the accounting policy changes.

The 3. accounting methods are different accounting methods. The core is whether to calculate the cumulative impact of accounting policy changes and adjust the initial retained earnings with cumulative impact.

In regard to accounting policy changes, enterprises should adopt the priority of retrospective adjustment according to different situations and supplement the future applicable law.

Specifically, first, when the enterprise changes its accounting policy according to the requirements of laws or accounting standards and other administrative regulations and rules, it should adopt a retrospective adjustment method, whether or not the state stipulates the relevant accounting treatment methods.

Second, change accounting policies due to changes in the economic environment and objective conditions, so as to provide more reliable and more relevant accounting information on enterprise conditions, business results and cash flows, so we should adopt retrospective adjustment method for accounting treatment.

Third, if the cumulative impact of accounting policy changes can not be reasonably determined, whether it is a change in accounting policies or regulations, or changes in accounting policies due to changes in the economic environment and objective conditions, the future applicable law can be used for accounting treatment.

There are two ways of accounting treatment adopted by enterprises. The first is that enterprises should adjust relevant items in the current period for accounting errors found in this period.

Second, this period found that the non major accounting errors related to the previous period did not adjust the initial number of related items in the accounting statements, but the related items that were found in the current period and the previous period should be adjusted.

Third, during the current period, it is found that significant accounting errors related to the previous period should be adjusted according to the number of effects on profits and losses, and the initial retained earnings of the current period should be adjusted. The initial number of other related items in the accounting statements should also be adjusted. If the profit and loss are not affected, the number of related items in the accounting statements should be adjusted.

This is evident.

The accounting treatment principle of accounting policy change is to adopt the method of retrospective adjustment as far as possible.

Accounting treatment of accounting errors, in most cases, only to adjust the relevant items found in the current period.

Only a few cases can be adjusted to find the initial retained earnings in the current period. This is because, in general, there are not many major accounting errors related to the previous period, but the probability of non major accounting errors is much larger.

The 4. accounting statements are disclosed differently. For accounting policy changes, enterprises should disclose accounting matters in addition to accounting treatment. First, the contents and reasons of accounting policy changes mainly include the elaboration of accounting policy changes, the date of accounting policy changes, the accounting policies adopted before the changes, the new accounting policies adopted after the changes, and the reasons for the change of accounting policies.

Second, the impact of accounting policy changes mainly includes the cumulative impact of retroactive adjustment on accounting policy changes, and the amount of accounting policy changes affecting the net profits and losses of other periods listed in the current accounting statements.

Third, the reason that the cumulative impact number can not be reasonably determined and the amount of the impact of the current operating results when the accounting policy changes.

The accounting errors should be disclosed in the notes to the accounting statements. First, the contents of the major accounting errors, including the matters, causes and correction methods of major accounting errors.

Second, the amount of correction of major accounting errors, including the impact of major accounting errors on net profit and loss, and the amount of other items affected.

Accounting policy change and accounting error correction need to be disclosed in the annotations of accounting statements.

The items disclosed are basically the same, including the contents, reasons, methods, and amount of alteration and correction. However, accounting policy change is a matter that must be disclosed, regardless of its impact on accounting statements, it must be disclosed in detail.

The disclosure of accounting error correction is limited to major accounting errors correction, and no correction of non major accounting errors can be disclosed.

To sum up, we can see that for a variety of reasons, changing accounting policies can better reflect the financial situation, business results and cash flows of enterprises. This is an objective and unavoidable reality. In other words, enterprises can not prevent changes in accounting policies through their own efforts.

Therefore, enterprises should actively learn the latest laws or accounting standards, strive to acquire new information and accumulate more experience to adapt to changes in accounting policies.

Accounting errors are more regular than accounting errors.