Chapter 20: Accounting changes and error corrections. When you finish this chapter, you should: 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. | Accounting Changes and Error Corrections 20 Insert Book Cover Picture Chapter 20: Accounting Changes and Error Corrections. Learning Objectives Differentiate between the three types of accounting changes and between the retrospective and prospective approaches to accounting for and reporting accounting changes. LO1 Our first learning objective in Chapter 20 is to differentiate between the three types of accounting changes and between the retrospective and prospective approaches to accounting for and reporting accounting changes. Accounting Changes The three types of accounting changes are a change in accounting principle, a change in accounting estimate, and a change in reporting entity. A change in accounting principle involves changing from one generally accepted accounting principle to another generally accepted accounting principle. A change in accounting estimate occurs when new information becomes available that allows a new and better estimate. A change in reporting entity is a change from one type of entity to another type of entity. Error corrections are . . . Transactions that are either recorded incorrectly or not recorded at all. Not actually accounting changes, but are accounted for similarly. Accounting Changes The correction of an error is necessary when a transaction is recorded incorrectly or not recorded at all. An error correction is not actually an accounting change, but it is accounted for in a similar fashion. Accounting Changes and Error Corrections Retrospective Two Reporting Approaches Prospective We use two approaches to reporting accounting changes and error corrections, depending on the situation. The retrospective approach involves the restatement of prior year’s financial statements, while the prospective approach affects the financial statements in the current and future years only. Retrospective Two Reporting Approaches Prospective Revise prior year’s statements that are presented for comparative purposes to reflect the impact of | Accounting Changes and Error Corrections 20 Insert Book Cover Picture Chapter 20: Accounting Changes and Error Corrections. Learning Objectives Differentiate between the three types of accounting changes and between the retrospective and prospective approaches to accounting for and reporting accounting changes. LO1 Our first learning objective in Chapter 20 is to differentiate between the three types of accounting changes and between the retrospective and prospective approaches to accounting for and reporting accounting changes. Accounting Changes The three types of accounting changes are a change in accounting principle, a change in accounting estimate, and a change in reporting entity. A change in accounting principle involves changing from one generally accepted accounting principle to another generally accepted accounting principle. A change in accounting estimate occurs when new information becomes available that allows a new and better estimate. A change in reporting entity is a
