AFM391 Chapter 21: Chapter 21 Notes

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Chapter 21 accounting changes and error analysis. Changes in accounting policies and estimates, and errors. Choices of accounting policies: aspe describes what makes up gaap and gaap hierarchy, which is the guidance to follow when there is no primary source of gaap; 2 levels of gapp, 1. Policies consistent with (1) and are developed by exercising judgement and applying concepts. Ifrs requires similar hierarchy; primary sources are priority, then judgement comes into play. The following are examples of accounting items that require estimates: 1. Fair value of financial assets or financial liabilities: 4. Useful lives of, the pattern of consumption of future economic benefits that are embodied in, and the residual values of depreciable assets: 5. Change not generally accepted to an accounting policy that is acceptable, or inappropriate application i. e. fifo specific identification where inventory items not ordinarily interchangeable: 2. Arithmetic mistakes i. e. incorrect totaling of inventory count sheets in calculating total inventory costs: 3.

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