Using Q&As and examples, this guide explains in depth how to identify, account for and present the different types of accounting changes and error corrections. Now updated for recent SEC staff commentary.
- Accounting changes comprise changes in accounting principle (mandatory or voluntary), changes in accounting estimates and changes in reporting entity.
- Mandatory changes in accounting principle (e.g. to adopt an ASU) follow the specifically mandated transition.
- Voluntary changes in accounting principle and reporting entity generally require comparative financial information to be adjusted.
- Unless mandated, an accounting principle can only be changed if the new principle is ‘preferable’.
- A material prior-period error is corrected by restating and reissuing the prior-period financial statements. An error can be material by its size and/or its nature.