Question

A. If management reports truthfully, what economic events are likely to prompt the following accounting changes?

• Increase in the estimated life of depreciable assets
• Decrease in the uncollectible allowance as a percentage of gross receivables
• Recognition of revenues at the point of delivery rather than at the point cash is received
• Capitalization of a higher proportion of software R&D costs
b. What features of accounting, if any, would make it costly for dishonest managers to make the same changes without any corresponding economic changes?

Answer 1

Increase in the estimated life of depreciable assets

Opinion of third parties

Step-by-step explanation:

If management reports truthfully, the economic events that are likely to prompt the following accounting changes are an increase in the estimated life of depreciable assets.

The features of accounting, that would make it costly for dishonest managers to make the same changes without any corresponding economic changes is auditing.

Auditiors are the third parties which provide a clean account of the financial statement of the company, therefore if the changes in the accounting policy are consistent with economic changes, the audits will not provide a clean account of the financial statement