Accounting Changes and Error Corrections
SFAS 154, May 2005
“Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”
“Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”
Change in accounting principle
1. “Retrospective” application
–> Apply new accounting principle
–> to all prior periods presented
2. At the beginning of the first period presented
–> Cumulative effect will be reflected on the beginning balances
–> of assets, liabilities, and retained earnings
3. Balances of all prior and current periods reflect
–> the effect of change in accounting principle
4. If it is impracticable
–> apply at the beginning of the earliest period possible
–> Apply new accounting principle
–> to all prior periods presented
2. At the beginning of the first period presented
–> Cumulative effect will be reflected on the beginning balances
–> of assets, liabilities, and retained earnings
3. Balances of all prior and current periods reflect
–> the effect of change in accounting principle
4. If it is impracticable
–> apply at the beginning of the earliest period possible
Change in accounting estimate
1. “Prospective” application
–> Apply to current and future periods only
2. Do not apply retrospectively
3. Change in depreciation method is
–> a change in accounting estimate
4. If the effects of (A) and (B) are “inseparable”
–> Total amount is considered as (B)
(A) change in accounting principle
(B) change in accounting estimate
–> Apply to current and future periods only
2. Do not apply retrospectively
3. Change in depreciation method is
–> a change in accounting estimate
4. If the effects of (A) and (B) are “inseparable”
–> Total amount is considered as (B)
(A) change in accounting principle
(B) change in accounting estimate
Change in reporting entity
1. Retrospective application
–> Apply to all prior periods presented
–> in the financial statements of new reporting entity
–> Apply to all prior periods presented
–> in the financial statements of new reporting entity
Correction of prior-period error
1. Retrospective “restatement”
–> Prior-period financial statements are restated
2. At the beginning of the first period presented
–> Cumulative effect will be reflected on the beginning balances
–> of assets, liabilities, and retained earnings
3. Balances of all prior and current periods reflect
–> the effect of error corrections
4. Materiality of errors is reviewed with reference to
–> the estimated “full fiscal year” income
5. Items material for (C), but not for (D) are
–> disclosed separately in the interim period
(C) interim period
(D) full fiscal year
–> Prior-period financial statements are restated
2. At the beginning of the first period presented
–> Cumulative effect will be reflected on the beginning balances
–> of assets, liabilities, and retained earnings
3. Balances of all prior and current periods reflect
–> the effect of error corrections
4. Materiality of errors is reviewed with reference to
–> the estimated “full fiscal year” income
5. Items material for (C), but not for (D) are
–> disclosed separately in the interim period
(C) interim period
(D) full fiscal year