27 ACCOUNTING CHANGES

Perspective and Issues

Change in Accounting Principle

Accounting requirements

Justification for a change in accounting principle

Reporting a change in accounting principle made in an interim period

Disclosure requirements

Changes in Accounting Estimate

Disclosures

Change in the Reporting Entity

Disclosures

Correction of an Error in Previously Issued Financial Statements

Disclosures

PERSPECTIVE AND ISSUES

Financial statements are the results of choices among different accounting principles and methodologies. Organizations select those principles and methods that they believe reflect, in their financial statements, the economic reality of their financial position, results of operations, and changes in financial position. Changes take place because of changes in the assumptions and estimates underlying the application of these principles and methods, changes in the acceptable principles by a promulgating authority, or other types of changes.

Accounting for and reporting of these changes is a problem that has faced the accounting profession for years. Much financial analysis is based on the consistency and comparability of annual financial statements. Any type of accounting change creates an inconsistency; thus, a primary focus of management in making the decision to change should be to consider its effect on financial statement comparability.

The FASB guidance for reporting accounting changes and error corrections is contained at FASB ASC 250-10. An accounting ...

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