FAR, Financial Accounting and Reporting

Sources for Accounting Changes and Error Corrections

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Accounting Changes and Error Corrections. The topic rests on ASC 250.

About this topic

ASC 250 does not say which accounting is correct. It says how to reflect a change, or fix a mistake, once the right answer is already known.

Four events fall under this topic: a change in accounting principle, a change in accounting estimate, a change in the reporting entity, and the correction of an error in previously issued statements.

Key points

A change in accounting principle is applied retrospectively unless impracticable; a change in estimate is applied prospectively.
An error correction is a restatement: prior-period financials are restated, and the cumulative effect adjusts beginning retained earnings.
A change in depreciation method is treated as a change in estimate, applied prospectively, not retrospectively.
The four-question sort: was it wrong, did coverage change, is it a revised judgment, or is it a new principle?

What the lessons cover

The one decision: retrospective, prospective, or restatement
Change in accounting principle: retrospective application (ASC 250-10-45-5)
The impracticability exception (ASC 250-10-45-9)
Change in accounting estimate: prospective (ASC 250-10-45-17)
Change in reporting entity (ASC 250-10-45-21)
Correction of an error: restatement and the prior period adjustment (ASC 250-10-45-23)
Required disclosures (ASC 250-10-50)

Authoritative references

ASC 250-10-45-1 and 45-2, the bar on switching principles at will: the entity must justify that the alternative principle is preferable.
ASC 250-10-45-5, a change in accounting principle: retrospective application.
ASC 250-10-45-6 and 45-7, the two-level fallback for an entity that has made every reasonable effort, with ASC 250-10-45-9 setting the impracticability bar for using either level.
ASC 250-10-45-8, the cumulative effect: only the direct effects of the change and their related income tax effects.
ASC 250-10-45-13, no separate proof of preferability where the change is driven by a standard-setter.
ASC 250-10-45-14, accounting changes made in an interim period, with additional interim disclosure of the effect on interim results.
ASC 250-10-45-17, a change in accounting estimate: prospective.
ASC 250-10-45-18, a change in estimate effected by a change in accounting principle, treated as a change in estimate.
ASC 250-10-45-21, a change in reporting entity: retrospective.
ASC 250-10-45-23, correction of an error: restatement of prior periods.
ASC 250-10-45-27, the paragraph from which ASU 2020-10 moved the interim materiality sentence into the Disclosure Section.
ASC 250-10-50-1, change in accounting principle disclosures: the nature of and reason for the change, including why it is preferable, the method of applying it, and its effects.
ASC 250-10-50-4, change in accounting estimate disclosure of the effect on income from continuing operations, net income, and related per-share amounts.
ASC 250-10-50-6, change in reporting entity disclosures for all periods presented; an amendment to this paragraph is pending and not yet effective.
ASC 250-10-50-7, the statement that previously issued financial statements have been restated.
ASC 250-10-50-8, disclosure of the gross and net-of-tax effects of prior period adjustments.
ASC 250-10-50-12, interim materiality for error corrections, judged against estimated full-year income and the trend of earnings.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.