Question

One purpose of financial accounting is to provide readers with comparable information
to evaluate trends. GAAP requires companies that change accounting principles to restate
prior years’ results, in the interest of comparability. Microsoft made such a change in
2018. However, GAAP does not require companies to fully restate prior year results after
a major acquisition, instead simply requiring pro forma disclosure of revenues and net
income as of the start of the prior year.
Discuss whether you feel this difference in the rules about restating prior year
results is appropriate. If you do not feel it is appropriate, what change would you
suggest in accounting rules?

Answer 1

Answer:

• According to GAAP, when bookkeeping standards or accounting principles are changed to give reasonable and better representation o financial information, Prior Year's Results are restored according to changed standards and displayed alongside current year figures. The justification behind the equivalent is that since change in Accounting Principle is a significant change which impacts the financial situation of current year just as earlier years to get Comparability and Uniformity in the Financial Statements. Financials will stand practically identical just if bookkeeping standards or accounting principles are reliably utilized.
• Be that as it may, in the event of Major Merger or Acquisition, such reinstatement isn't required identifying with earlier years. It basically required Disclosure of Pro Forma Revenues and Net income identifying with beginning of the earlier year. This is required to value Investment at correct worth and to know about arising Goodwill or Capital Profits from the Acquisition. Since comparability and consistency isn't influenced, henceforth reinstatement isn't necessary.
• Above treatment is Appropriate according to our perspectives and hence require no change.