What is Change in accounting principle?
In short
A change in accounting principle is a change from one generally accepted principle to another, such as from first-in, first-out (FIFO) to weighted-average inventory. It is allowed only if required by a new standard or justified as preferable.
Key takeaways
- It is applied retrospectively unless that is impracticable.
- A change to last-in, first-out (LIFO) is usually applied prospectively, because the earlier layers can't be determined.
- A change in depreciation method is a change in estimate effected by a change in principle, applied prospectively.
Where it's tested
FAR: Accounting Changes & Error Corrections — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
When a change in accounting principle is applied retrospectively, the cumulative effect of the change on periods before those presented is reported as: