What are the major reasons why companies change accounting methods
Discussion
#1. In recent years, the?Wall Street Journal has indicated that many companies have changed their accounting principles. What are the major reasons why companies change accounting methods?
Student Response
#2. For most companies they are always looking for a way to make everything easier to do so that they can waste less time in order to be more productive. Having a faster and easier way of doing the accounting method is always something that a company is looking to do. There is also the chance that laws are changing which cause companies to change their accounting method to stay within the guidelines of the new laws and requirements that are set in place. Following the guidelines and principles that are being updated constantly is the only way a company is able to stay in business due to the fact that if they do not follow all rules they run the risk of being closed or fined a large amount of money.
#3. Companies may change their accounting methods for several different reasons. They may want to show a better picture of profit; this is not only going bring in more investors, it will can make the current investors happy. It can also cause the companies stock to go up, since more investors may want a slice of the action. One of the main reasons companies change accounting methods is to pay less income tax. Though there are some differences between book income and taxable income, such as interest from state or municipal bonds and deducting fees paid for fines; companies can also make changes to their accounting methods to affect their tax liability. Changes in the valuation of inventory or the rate at which depreciation on fixed assets is taken, can make a huge difference when it comes times to pay taxes. Sometimes the requirements for reporting certain items may change. The Financial Accounting Standards Board may make a change that requires companies to change the accounting method they use, so that that they can continue to follow the rules passed down,
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