12/11/21, 7:43 PM Accounting change definition — AccountingTools

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March 16, 2021

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What is an Accounting Change?
Accounting Books
An accounting change is a change in accounting principle, accounting
estimate, or the reporting entity. These changes can trigger modifications in Finance Books
the reported profits or other financial aspects of a business. They are
covered in more detail below. An accounting change may require Operations Books
discussion in the notes accompanying the financial statements. This is
needed so that the users of the statements can ascertain the extent to Send us your e-mail address to
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which an accounting change triggered a variation in the financial
discounts
*
statements.

Change in Accounting Principle

A change in accounting principle is a change from one generally accepted SUBMIT

accounting principle to another generally accepted accounting principle. A
change in principle does not occur when there is an initial adoption of an
accounting principle caused by transactions occurring for the first time. This
is a relatively rare occurrence.

Change in Accounting Estimate

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12/11/21, 7:43 PM Accounting change definition — AccountingTools

A change in accounting estimate is a change that adjusts the carrying

amount of an existing asset or liability, or which alters subsequent
accounting for either existing or future assets or liabilities. Accounting
estimates that are commonly changed include reserves for uncollectible
receivables, warranty obligations, and inventory obsolescence. Accounting
estimates may occur as frequently as every reporting period.

Change in Reporting Entity

A change in reporting entity is a change that results in financial statements

that are effectively those of a different reporting entity. This usually involves
changing from individual to consolidated reporting, or altering the
subsidiaries that make up a group of entities whose results are
consolidated.

Example of an Accounting Change

An example of an accounting change is switching from the cash basis to the

accrual basis of accounting.

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