When a change in accounting principle occurs, the:
A) cumulative effect of the change should be reported in the current year's retained earnings statement.
B) change should be reported retroactively.
C) old accounting principle should be used for the current year.
D) new accounting principle should be used starting in the current year, with no change to the prior years.

Question

Quizplus · Accepted Answer

When a change in accounting principle occurs, it should be reported retroactively. This means that the financial statements for all prior periods presented should be restated to reflect the new accounting principle. The cumulative effect of the change should be reported as an adjustment to the beginning balance of retained earnings for the earliest period presented. It is not appropriate to continue using the old accounting principle for the current year, as this would result in inconsistent financial statements.

When a Change in Accounting Principle Occurs, The