Accounting Changes And Error Correction
Barron's Accounting Dictionary:
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Accounting Changes And Error Correction
Change in (1) accounting principles (such as a new depreciation method); (2) accounting estimates (such as a revised projection of doubtful accounts receivable); or (3) the reporting entity (such as a merger of companies).Achange in principle requires retrospective application to previous years' financial statements, a change in estimate is accounted for prospectively over current and future years, and a change in reporting entities mandates the restatement of previous years' financial statements as if both companies were always combined. Corrections of errors adjust the beginning balance of retained earnings.
Note: The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively.
FASB Statement No. 154, Accounting Changes and Error Corrections (ASC, 250-10-05) provides for accounting changes in principle, estimate, and reporting entity. Correction of an error in a prior year is also briefly mentioned. Proper disclosure of accounting changes is necessary.
See also error correction.
Note: The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively.
FASB Statement No. 154, Accounting Changes and Error Corrections (ASC, 250-10-05) provides for accounting changes in principle, estimate, and reporting entity. Correction of an error in a prior year is also briefly mentioned. Proper disclosure of accounting changes is necessary.
See also error correction.
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Accounting Changes And Error Correction
Investopedia Financial Dictionary:
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Accounting Changes And Error Correction
Requirements for the accounting for and reporting of a change in accounting principle, change in accounting estimate, change in reporting entity or the correction of a transaction. Accounting Changes and Error Correction is a pronouncement made by the Financial Accounting Standards Board (FASB) and is a Statement of Financial Accounting Standards (SFAS). It outlines the rules for correcting and applying changes to financial statements. This pronouncement, Number 154, replaced FASB Statement No. 3 and the Accounting Principle Board (APB) Opinion No. 20. It was issued in May 2005.
Investopedia Says:
The two primary accounting standards bodies, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), have different interpretations of accounting rules and principles but do work together to create some uniformity when possible. The Accounting Changes and Error Correction pronouncement is similar to the IASB's "Accounting Policies, Changes in Accounting Estimates and Errors" released in 2003.
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Dictionary of Accounting Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
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