Reference no: EM132461338

Change in Accounting Principle

The Company elected to change its method of accounting for inventory from the retail method to the weighted average cost method effective February 2, 2013. In accordance with generally accepted accounting principles, all periods have been retroactively adjusted to reflect the period-specific effects of the change to the weighted average cost method. The Company believes that accounting under the weighted average cost method is preferable as it better aligns with the Company's focus on realized selling margin and improves the comparability of the Company's financial results with those of its competitors. Additionally, it will improve the matching of cost of goods sold with the related net sales and reflect the acquisition cost of inventory outstanding at each balance sheet date. The cumulative adjustment as of January 30, 2010, was an increase in its inventory of $73.6 million and an increase in retained earnings of $47.3 million.

Required:

Question 1. What approach should A&F take to account for its change in inventory accounting? (prospective or retrospective)

Question 2. Which enhancing qualitative characteristic of accounting best describes the reason for A&F's approach to accounting for its change in inventory method? (verifiability, understandability or comparability)