Approaches to Accounting Changes
Three approaches to a change in principle. Accounting Principles Board set guidelines when each should be used.
- Current--Cumulative Effect of a Change in Accounting Principle
- The new principle is applied during the current year.
- The additive (cumulative) effect on earnings of a change in principle up to the current period is presented (net of tax effect) as a separate line item on the income statement after extraordinary items.
- Enhances consistency at the expense of comparability.