The AT&T Companys Accounting Scenario

In most cases, business organizations may experience sudden depreciation in the value of their assets making the useful life of the products to be less than predetermined. To remain consistent and relevant in the records, such firms apply various accounting standards to correct the entries. For instance, considering the AT & T situation, after the discovery of the change in useful life, the company should adjust its financial statements to comply with accounting standards.

Based on the accounting scenario AT & T Company faced, it is important for the firm to increase the depreciation of the products. Following the accounting concept known as the matching principle, it is necessary for any business organization to report the expenses and the revenues generated from them. Since the antennas useful life has dropped significantly from 20 years to 7 years, it will force AT & T to spread the cost of antennas within a short timeline. The practice will require the entity to take high depreciation charges, especially during the initial stages of the products. As a result, the company will record reduced income in the meantime. In addition, the firm will have to revalue the assets to determine new value. This aspect will allow for proper adjustments on the firms financial statements, including the cash flow statement, balance sheet, and income statement (Solikhah et al., 2019). The approach will enable the business organization to rectify the impacts of the situation.

Generally, in accounting, there are various standards that guide the bookkeeping practice accordingly. Based on the situation AT & T firm faced, both Accounting Standards Codification (ASC) 350-40 and ASC 360-10-35 should be followed. ASC 350-40 provides necessary guidelines on how the accounting process involving damages of assets having a long life is to be undertaken (Hong et al., 2018). The principle dictates that in the event of loss, the respective firm should perform an impairment test immediately to estimate the assets fair value and compare it with the items original cost. By undertaking the process, AT & T will be able to determine whether the antennas carrying value is higher than the fair value; hence it will recognize the aspect of impairment loss.

Similarly, the ASC 360-10-35 standards guide how a business organization can perform accounting for possible changes in the products salvage value. In relation to the AT & T scenario, ASC 360-10-35 will require the company to account for the changes in the provided period (Mutha et al., 2021). In other words, the entity will have to undertake adjustments to the current useful life of the asset and recognize it as per the determined timeframe. That is to say, AT & T should directly change antennas useful life from the previous 20 years to the current seven years to ensure the financial statements depict the right value of the asset. The procedure will make sure the firm follows and comply with the mentioned accounting standards.

Based on the AT & T situation, the discovery should be made as an adjustment to the depreciation expense. While making the changes, the firm should use the current period to enable the impact to be shown in the financial statement. It is important for the business organization to perform a reassessment of the assets carrying value and make the necessary adjustment to fit the current useful life, which according to the scenario, is seven years. By engaging in the practice, AT & T will detect an impairment loss that will then be recorded as a change against the revenue of the firm.

Supposing AT & T issues financial statements quarterly and the discovery of the scenario is made in the third quarter, it will be appropriate to show the effect of the discovery prospectively. The notion implies that the aspect of depreciation expenses on the items, including the impairment loss, should be taken into consideration from the current and future periods beginning from the third quarter. According to ASC 250-10-45-7-17, any estimated accounting in the financial statements should not be reflected retrospectively (30.5 change in accounting estimate, n.d). Therefore, the code demands that in calculating the depreciation expense for the antennas, the current useful life should be applied to the current and future periods. Similarly, on the basis of the revaluation of the items, AT & T should record the changes on the statement of financial position and reflect them as per the discovery date. The practice will ensure that the financial statements of the business organization reflect the correct original cost of the antennas and that the possible adjustments are captured in the right period. The procedure will enhance compliance with vital accounting standards such as relevance and consistency.

Based on the AT & T scenario, I would recommend the company effectively update its accounting guidelines to allow it to record any possible changes on its financial statement at the appropriate time. Furthermore, the business organization should undertake an impairment test to enable the management to determine the variation between the fair value and carrying value of the assets. Through the practice, AT & T will be able to record the right figures of original cost of the items and make the necessary modifications in accordance with the accounting standards. The approach will ensure the firm remains relevant and its financial reports are accurate.

In summary, based on the AT & T scenario, practices such as the revaluation of antennas and increasing the depreciation are significant accounting approaches that will enable the firm to identify an impairment loss. To avoid the situation faced by the company, frequent update of accounting procedures will ensure the entity remain relevant and able to correct changes when they are discovered according to the code ASC 250-10-45-7-17.