Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 5. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES, AND ERRORS (ASC 250)

BACKGROUND AND INTRODUCTION

When contemplating a change in accounting principle, a primary focus of management should be to consider its effect on financial statement comparability. For users of financial statements, it is important to be able to compare not only the financial statements of an entity from one period to another but also the financial statements of different entities. Such information is needed in order to make relative comparisons of financial performance and financial position and changes in financial position.

ASC 250 prescribes criteria for selecting and changing accounting policies and the disclosures thereof and also sets out the requirements and disclosures for changes in accounting estimates and corrections of errors. In doing so, it purports to

• Enhance the relevance and reliability of an entity's financial statements

• Ensure the comparability of the financial statements of an entity over time as well as with financial statements of other entities

DEFINITIONS OF KEY TERMS (in accordance with ASC 250)

Accounting policies. The accounting principles of a reporting entity and the methods of applying them.

Change in accounting estimate. A revision of an accounting measurement based on the occurrence of new events, additional experience, subsequent developments, better insight, and improved judgement.

Errors. Mathematical mistakes, mistakes in applying accounting principles, oversight or ...