Research a company that had a change in accounting principles within the past five (5) years....
Research a company that had a change in accounting principles within the past five (5) years. Discuss the accounting principles that the identified company changed and explain the major reasons why the company changed accounting principles. Give your opinion on whether you believe the change in accounting principles was motivated by an attempt to provide more useful information or to make financial results look better to investors and creditors. Provide a rationale for your response.
Homework Answers
Amazon
Change in accounting principle: The company recently had a change in it's revenue recognition policy. Revenue recognition is a generally accepted accounting principle (GAAP) that identifies the specific conditions in which revenue is recognized and determines how to account for it.The change particularly impacted Amazon-branded electronic devices sold through retailers. Revenue from such sales will be recognized upon sale to the retailer rather than to end customers. Also greatly affected were the unredeemed portion of Amazon’s gift cards, which the company will begin to recognize over the expected customer redemption period, which is substantially within nine months. Previously, Amazon did not use to recognize revenue until gift cards expired or when the likelihood of redemption becomes remote, generally two years from the date of issuance.
Reason for the change in accounting principle: Recently, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) jointly issued Accounting Standards Codification (ASC) 606, regarding revenue from contracts with customers. ASC 606 provides a uniform framework for recognizing revenue from contracts with customers. In order to comply with the changes in reporting requirements. Amazon had to change it's accounting principles in this regard.
Impact/Purpose of such change: The change in accounting principles was motivated by an attempt to provide more useful information. The old guidance was industry-specific, which created a system of fragmented policies. The updated revenue recognition standard is industry-neutral and, therefore, more transparent. It allows for improved comparability of financial statements with standardized revenue recognition practices across multiple industries.
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Research a company that had a change in accounting principles
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