A change in accounting principle made by a nonissuer has no material effect on the financial statements in the current year but is expected to have a material effect in later years. Accordingly, the change should be

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Business

Slade Kent

11 September, 01:59

A change in accounting principle made by a nonissuer has no material effect on the financial statements in the current year but is expected to have a material effect in later years. Accordingly, the change should be

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Benjamin · Answer 1

Accordingly, the change should be disclosed in notes to the financial statement of the current year.

Explanation:

A change in accounting principle occurs when there is change in a method adopted for measuring an accounting item. For example, change in depreciation method used. This change is usually apply prospectively i. e that is in effect of the future period. When this happen, it breaches the principle of consistency that accounting methods should remain same from period to period and distort comparison across period.

In order to curtail this, it is important to disclose to users of the financial statement that there is a change in accounting principle. And this disclosure should be made in the current period even if the change in accounting principle does not materially affect the current year figure.

Making this disclosure will enable the users to understand how the comparison will be made and reason for the change in accounting principle.