4.4 Changes in Accounting Principle, Changes in Accounting Estimate, and Error Corrections

Although the concepts and accounting treatment of (1) changes in accounting principle, (2) changes in accounting estimate, and (3) error corrections are similar under IFRS Accounting Standards and U.S. GAAP, the table below shows that there are some notable differences in terminology and disclosure requirements.

Topic	IFRS Accounting Standards (IAS 8)	U.S. GAAP (ASC 250)
Changes in Accounting Principle (Policy)
Indirect effects of a change in accounting principle (policy)	No guidance is provided on accounting for or disclosing the indirect effects of a change in accounting policy.	Indirect effects of a change in accounting principle that are incurred and recognized are recorded in the period of change. Certain disclosures are also required.
Balance sheet presentation when there is a retrospective change	An entity must present the beginning balance sheet of the preceding period (i.e., a third balance sheet is presented).	An entity is not required to present the beginning balance sheet of the preceding period.
Changes in Accounting Estimate
Change in accounting estimate effected by a change in accounting principle (policy)	IFRS Accounting Standards do not include the concept “change in accounting estimate effected by a change in accounting principle.” An entity will need to determine whether a change is a change in accounting policy requiring preferability or a change in accounting estimate. When it is difficult to make such a determination, the accounting should follow the guidance for a change in estimate.	Under U.S. GAAP, there is guidance on and a definition of a “change in accounting estimate effected by a change in accounting principle.” Like other changes in accounting principles, such a change must be to a preferable principle.
Error Corrections
Impracticability of retrospective restatement	Retrospective restatement for corrections of errors is required unless it is impracticable.	Retrospective restatement for corrections of errors is required; impracticability exemptions are not permitted.
Balance sheet presentation when there is a retrospective change	An entity must present the beginning balance sheet of the preceding period (i.e., a third balance sheet is presented).	An entity is not required to present the beginning balance sheet of the preceding period.
Other Differences
Change in reporting entity	There is no specific guidance on how to account for a change in reporting entity or on whether it is appropriate to retrospectively adjust an entity’s financial statements for a change in reporting entity.	Prior-period financial statements are retrospectively adjusted if there is a change in reporting entity. Certain disclosures regarding the change are also required.