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Accounting Changes and Error Corrections


Chapter 4 provided an overview of accounting changes and error correction. Later, we discussed changes encountered in connection with specific assets and liabilities as we dealt with those topics in subsequent chapters.

Here we revisit accounting changes and error correction to synthesize the way these are handled in a variety of situations that might be encountered in practice. We see that most changes in accounting principle are reported retrospectively. Changes in estimates are accounted for prospectively. A change in depreciation methods is considered a change in estimate resulting from a change in principle. Both changes in reporting entities and the correction of errors are reported retrospectively.



Differentiate among the three types of accounting changes and distinguish between the retrospective and prospective approaches to accounting for and reporting accounting changes.

Describe how changes in accounting principle typically are reported.

Explain how and why some changes in accounting principle are reported prospectively.

Explain how and why changes in estimates are reported prospectively.

Describe the situations that constitute a change in reporting entity.

Understand and apply the four-step process of correcting and reporting errors, regardless of the type of error or the timing of its discovery.





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