Accounting Change

DEFINITION of 'Accounting Change'

A change in accounting principles, accounting estimates, or the reporting entity. A change in an accounting principle is a change in a method used, such as using a different depreciation method or switching from LIFO to FIFO. An example of an accounting estimate change could be the recalculation of machine's estimated life due to wear and tear. The reporting entity could change due to a merger or a break up of a company.

Accounting changes require full disclosure in the footnotes of the financial statements to describe the justification and financial effects of the change. This allows readers of the statements to analyze the changes appropriately.

BREAKING DOWN 'Accounting Change'

A company generally needs to restate past statements to reflect a change in accounting principle. A change in accounting estimate does not need to be restated. In the case of any accounting change, users of the financial statements should examine the footnotes closely to understand what the changes mean and if they effect the true value of the company.

RELATED TERMS
  1. Accounting Changes And Error Correction

    Requirements for the accounting for and reporting of a change ...
  2. Accounting Policies

    The specific policies and procedures used by a company to prepare ...
  3. Accounting Principles

    The rules and guidelines that companies must follow when reporting ...
  4. Accounting Entity

    A clearly defined economics unit that is accounted for separately. ...
  5. Discovery Value Accounting

    A method of accounting often used in the oil and gas, mining ...
  6. Accounting Method

    The method by which income and expenses are reported for taxation ...
Related Articles
  1. Investing

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  2. Investing

    Why Last In First Out Is Banned Under IFRS (XOM)

    We explain why Last-In-First-Out is banned under IFRS
  3. Markets

    What is Accounting?

    Accounting is the recording of financial transactions of a business or organization. It also includes the process of summarizing, analyzing and reporting these transactions in financial statements.
  4. Markets

    How to Manage Corporate Change in the Modern Economy

    Change can make employees uncomfortable, but these keys can help ease the transition and increase morale.
  5. Investing

    Accounting Basics: Branches Of Accounting

    By Bob Schneider Accounting can be divided into several areas of activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not ...
  6. Investing

    Footnotes To The Financial Statements

    The footnotes provide additional information in a company’s financial statements.
  7. Retirement

    Footnotes: Early Warning Signs For Investors

    These documents hold very important information, but reading them takes skill.
  8. Personal Finance

    What is an Account Balance?

    An account balance represents the total amount of money in a financial account at any given moment.
  9. Investing

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  10. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
RELATED FAQS
  1. What are the differences between a change in accounting principle and a change in ...

    Learn how to differentiate between a change in accounting principle and a change in accounting estimate and how accountants ... Read Answer >>
  2. How should a change in accounting principle be recorded and reported?

    Learn about changes in accounting principle and why businesses make them, as well as the reporting and recording requirements ... Read Answer >>
  3. Does US GAAP prefer FIFO or LIFO accounting?

    Investigate the use of LIFO and FIFO inventory accounting methods under U.S. GAAP, and learn why there is pressure from some ... Read Answer >>
  4. What are some of the basic Generally Accepted Accounting Principles?

    Learn more about generally accepted accounting principles determined by the Financial Accounting Standards Board, including ... Read Answer >>
  5. What are the business consequences of using FIFO vs. LIFO accounting methods?

    Learn about the real business consequences from using a first-in, first out inventory accounting method versus a last-in, ... Read Answer >>
  6. What are the disadvantages of the FIFO accounting method?

    Learn how the FIFO accounting method differs from the LIFO method and the primary disadvantages for a company using the FIFO ... Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center