Definition

Change in accounting principle

A change in accounting principle occurs when the principle used in the current year is different form the one used in the preceding year. Accounting rules permit a change when management can show that the new principle is preferable to the old principle. An example is a change in inventory costing methods (such as FIFO to average cost.)

Companies report most changes in accounting principle retroactively. That is , they report both the current period and previous periods using the new principle.

Changes in accounting principle should result in financial statements that are more informative for statement users. They should not be used to artificially improve the reported performance or financial position of the corporation.

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