In order for an entity's financial statements to remain comparable between periods, changes in accounting policies, changes in accounting estimates, and correction of a prior period error must be treated in accordance with generally accepted accounting principles. Changes in accounting policies may be required (under GAAP or when a new accounting standard becomes applicable) or voluntary. Changes in accounting estimates are considered a normal part of the accounting process, and are usually the result of changed circumstances or new information. A prior period error is a mistake or omission that is not discovered until after the financial statements for the period have been issued. Both IFRS and ASPE limit the types of accounting changes permitted, and outline the related reporting and disclosure requirements, in order to maintain usefulness and relevance of the financial statements. Approaches to treatment of an accounting policy change or correction of a prior period error are limited to full retrospective application or restatement, partial retrospective application or restatement, and prospective application. This chapter discusses when and how each approach should be applied, and the disclosure requirements under each.
According to Parts I and II of the CICA Handbook, changes in accounting policies are changes in the choice ...