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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Anil Ltd. changes from the written down value method to the straight line method of depreciation, with no change in law, and the effect is material. Considering the Framework's qualitative characteristic of comparability, what is the most appropriate step?

The company should disclose the change in method, the reason for it and its financial effect. Comparability lets users compare statements over time and identify differences in policies, so a material change must be clearly disclosed rather than made silently.

  1. ADisclose the change, its reason and its financial effect so users can compare periodsCorrect
  2. BMake no disclosure since depreciation is an estimate
  3. CRestate the prior years' audit reports
  4. DChange the method silently and adjust only the opening reserves

Explanation

Comparability requires users to be able to identify differences between periods, so a material change in policy needs disclosure of the change, reasons and effect. Silent changes or ignoring disclosure defeat comparability. Audit reports are not restated by the company.

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