Accounting Changes and Error Corrections
Accounting changes under ASC 250 are guaranteed on every FAR exam — usually 2-3 MCQs. The AICPA tests one thing above all else: can you identify which treatment applies (retrospective, prospective, or prior period adjustment)? The trap everyone falls into: changing depreciation method looks like a principle change but ASC 250 treats it as a change in estimate effected by a change in principle — prospective only, no restatement. Get that distinction cold. Error corrections always hit retained earnings (net of tax), never the current income statement.
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What AICPA Wants You to Know
- 1Distinguish the three types of accounting changes and one error correction category
- 2Apply retrospective treatment to changes in accounting principle
- 3Apply prospective treatment to changes in accounting estimate
- 4Record error corrections as prior period adjustments to retained earnings
- 5Explain the change in reporting entity and its required treatment