FASB Codification Assignment Name Lakisha Trammel Course ACC

Fasb Codification Assignmentname Lakisha Trammelcourseacc 616 050p

Accounting changes refer to the variations that impact the quantity of the existing liabilities/assets. The changes can also be referred to as alterations towards existing or future liabilities/assets. The changes occur either when the estimates have been proved to be incorrect or when new information emerges.

An example of accounting changes is the presence of an obsolete inventory. Accounting estimates, on the other hand, refers to accounting variations that are inseparable from the impacts related to associated accounting principles (“Asc.fasb.org,” 1999). Accounting estimates result when two or more GAAP principles apply to a common situation—for example, depreciation and amortization approaches on assets. The two differ in several ways. Accounting changes mainly occur when new methods are utilized or when older approaches are no longer applicable.

The variations are only applied retroactively. An example is the inability to make significant subjective estimates (“Asc.fasb.org,” 1999). Accounting estimates, on the other hand, are encountered within specific periods, and they require a restatement more frequently. If changes have immaterial differences, then disclosure is not necessary.

Guidance the codification provides concerning the format of accounting disclosures

The codifications reference: ASC Paragraph 6 indicates that the format of accounting disclosure policies should be made very flexible. This flexibility allows entities to easily describe and recognize essential accounting policies that can result in positive impacts (“Asc.fasb.org,” 1999). For better understanding, disclosures are preferred to be made separately immediately after the summary and policy notes.

Assessment of accounting policies and their disclosure requirements

According to the ASC, financial position, description, and cash flows cannot be fairly presented in the absence of sufficient information on accounting policies. All GAAP policies need to be evaluated and integrated to ensure clarity. Typically, these policies do not apply to unaudited information. A genuine financial statement must be original work that has not been previously presented elsewhere (“Asc.fasb.org,” 1999). When referencing work from elsewhere, proper citations are essential.

Disclosure should be presented in a separate, significant summary to maintain coherence on the discussion topic. Accounting policies, which include unique principles and techniques judged suitable by management, determine how a fair financial position is presented (Keiso, Weygandt & Warfield, 2016). These policies involve important judgments scrutinizing the appropriateness of the principles applied.

Three scenarios may necessitate detailed accounting disclosures: selecting from acceptable existing alternatives; applying GAAP principles unconventionally, requiring special disclosure; and when principles or approaches are unusual for the industry. Proper disclosure ensures transparency and comparability among financial statements.

Guidelines for capitalizing interest according to ASC 835-20

Based on accepted principles of financial accounting, capitalizing interest into the cost of assets is permissible. Interest capitalization is traditionally part of asset acquisition costs. However, not all assets qualify for interest capitalization (“Asc.fasb.org,” 1999). Qualified assets include those produced for internal use, assets intended for sale, and investments. The amount of interest capitalized should not exceed the actual cost incurred during the period, preserving fairness and accuracy.

Two types of disclosures are required when interest capitalization is recognized: first, the total interest cost incurred during the period, and second, the amount capitalized as part of the asset’s cost. These disclosures enhance transparency and assist users of financial statements in understanding the capitalized costs versus expenses incurred.

Conclusion

The FASB Codification provides comprehensive guidance on accounting estimates, changes, disclosure formats, and capitalizing interest. These standards are designed to promote transparency, comparability, and consistency in financial reporting. Recognizing when and how to disclose accounting policies and estimates is vital for maintaining integrity and clarity in financial statements, aligning with GAAP principles and regulatory requirements.

References

• Asc.fasb.org. (1999). FASB Accounting Standards Codification®. Available at: https://asc.fasb.org
• Keiso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate Accounting (16th ed.). Danvers, MA: John Wiley & Sons, Inc.
• Financial Accounting Standards Board. (2018). ASC 350: Intangibles—Goodwill and Other. FASB.
• Financial Accounting Standards Board. (2019). ASC 340: Other Assets and Deferred Costs. FASB.
• International Financial Reporting Standards Foundation. (2020). IFRS Standards — IAS 1 Presentation of Financial Statements.
• U.S. Securities and Exchange Commission. (2021). Financial Reporting Manual. SEC.
• Schipper, K. (2000). A Review of Historical Cost Accounting. Journal of Accounting and Economics, 28(1), 17–38.
• Barth, M. E. (2006). Including Estimates of Fair Value in Historical Cost Financial Statements. Journal of Accounting Research, 44(2), 193–232.
• Chen, S., & Zhang, Y. (2015). The Impact of Financial Disclosures on Investors’ Trust. Journal of Financial Reporting, 3(1), 45–59.
• Jones, M. J. (2011). The Role of Accounting Policies in Financial Reporting. Accounting, Organizations and Society, 36(3), 189–203.