- Change in accounting principle
- Change from GAAP or IFRS to another
- Inventory accounting from LIFO to FIFO
- Require retrospective application
- All prior-period are restated to reflect the change
- Enhance comparability of statement over time
- Change from GAAP or IFRS to another
- Change in accounting estimate
- Result of change in management’s judgment due to new information
- Change in the useful life of an asset when realize asset has a shorter or longer life
- Does not require the restatement of prior financial statements
- Analytical implication
- Do not affect cash flow
- Should review change in accounting estimate to determine impact on future operating
- Result of change in management’s judgment due to new information
- Prior-period adjustment
- Change from incorrect accounting method to one that is acceptable under GAAP or IFRS
- Restate all results for all prior periods
- Analytical implication
- Involve errors or new account standard, not affect cash flow
- Error may indicate weakness in internal controls