What does change in accounting principle mean on the CPA exam?
Change in accounting principle. A switch from one acceptable principle to another, allowed only when a new standard requires it or the new principle is preferable. Applied retrospectively, with the cumulative effect taken to opening retained earnings, or other equity, of the first period presented.
Defined against ASC 250-10-45-2, 45-5.
Which CPA exam sections use change in accounting principle?
Change in accounting principle appears in the FAR section of the CPA exam.
Other terms defined against ASC 250-10
- change in accounting estimate: A revision to an estimate because new information arrived, applied prospectively in the period of change and later periods, never by restating prior statements.
- prior period adjustment: A correction of a material error in previously issued statements.
Related terms
- retained earnings: Cumulative profit the entity has kept rather than paid out as dividends.
- earnings and profits: A corporation's cumulative economic capacity to pay a distribution out of earnings rather than out of capital.
- net of tax: Stated after the tax effect has been taken out.
- net income: What is left after every revenue and expense of the period, including tax and discontinued operations.
- treasury stock: A company's own shares reacquired and not retired.
- reasonable basis: The lowest standard at which a return position may be taken without penalty if it is disclosed.