Change in Accounting Principle
Switching Between GAAP Methods
A change in accounting principle occurs when a company adopts a different generally accepted accounting principle. Examples include changing inventory costing methods or adopting a newly required accounting standard.
- FIFO to weighted-average inventory costing.
- Adoption of a new accounting standard.
- Percentage-of-completion to another permitted method when appropriate.
Note
The objective of retrospective application is to make financial statements appear as though the new accounting principle had always been used.
Summary
Changes in accounting principles are generally reported retrospectively.