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examples commonly changed estimates include baddeb

Examples commonly changed estimates include bad-debt allowance

Accounting Principle Change vs. Accounting Estimate Change: An Overview
One area where the Fair Accounting Standards Board (FASB), and the International Accounting Standards Board (IASB), agree is with the treatment of accounting changes.

SFAS 154, Accounting Changes and Error Correction, documents how companies should treat changes in accounting principles and changes in accounting estimates, two related but different concepts. A principle determines how information should be reported, while an estimate is used to approximate information.

 There are instances when restatements (with principle changes) or disclosures (with estimate changes) don’t have to be made.

Accounting Principle Change
Accounting principles are general guidelines that govern the methods of recording and reporting financial information. When an entity chooses to adopt a different method from the one it currently employs, it is required to record and report that change in its financial statements.

Key Differences
Accounting principle changes can also occur when older principles are no longer accepted or when the way the method is applied changes. Changes in accounting principles are required to be applied retroactively—that is, financial statements must be restated to be presented as if the new accounting principle had been used.

Only line items that are directly affected have to be restated. There are cases where a retroactive application doesn’t have to be made, which includes having made all reasonable efforts to do so, which can include not being able to make subjective significant estimates or having to have knowledge of management’s intent.

comparable financial statements that are free from material misstatement.

Accounting changes and errors in previously filed financial statements can

affect the comparability of financial

reporting considerations for error corrections. While the guidance included

herein is not a substitute for the exercise of professional judgment or

Accounting Standards Codification (ASC) Topic 250, Accounting Changes and Error Corrections, addresses certain circumstances that require special accounting or disclosure, including:

in Accounting Principle

“A change from one generally accepted accounting principle to

another generally accepted accounting principle when (a) there are two or more generally accepted accounting principles that apply; or (b) the accounting principle formerly used is no longer generally accepted. A change in the method of applying an accounting principle also is considered a change in accounting principle.”

 Voluntarily changes from one acceptable accounting principle to another on the basis that it is preferable.

Newly issued ASUs include specific transition and disclosure

in Accounting Estimate

existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities.”

A change in accounting estimate is a necessary consequence of

receivables, obsolete inventory, and warranty obligations, among others.

Sometimes, a change in estimate is affected by a change in accounting

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