What should occur when there is a change in accounting principle? A : The new principle should be used in reporting the results of operations of the current year, but there is no change to prior years. B : The old principle should be used in reporting the results of operations for the current year. C : The change should be reported retroactively. D : The cumulative effect of the change should be reported in the current year's income statement.

Question

Business

Mckinley Bradshaw

21 June, 10:53

What should occur when there is a change in accounting principle? A : The new principle should be used in reporting the results of operations of the current year, but there is no change to prior years. B : The old principle should be used in reporting the results of operations for the current year. C : The change should be reported retroactively. D : The cumulative effect of the change should be reported in the current year's income statement.

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Answers (1)

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Louis Pollard · Answer 1

The correct answer is letter "C": The change should be reported retroactively.

Explanation:

Changes in Accounting Principles happen when a company switches between various generally accepted accounting principles or adjusts the process by which a rule is applied. Those changes can take place in accounting mechanisms for Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

When the changes happen, companies must apply it retrospectively to all previous accounting periods, as if the norm would have been always there.