The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported
A) by showing the pro forma effects of retroactive application.
B) by restating the financial statements of all prior periods presented.
C) in the period of change and future periods
D) as a correction of an error.

Question

Quizplus · Accepted Answer

A change in accounting estimate should be applied prospectively, meaning it is only applied to current and future periods. Therefore, any effects that are inseparable from a change in accounting principle should also only be applied in the period of change and future periods. Choices A and B are incorrect because retroactive application and restatement of prior periods are only necessary for changes in accounting principle that are not inseparable from changes in accounting estimate. Choice D is incorrect because the change is not a correction of an error.

The Effect of a Change in Accounting Principle That Is