Accounting Changes and Error Corrections
Accounting changes under ASC 250 show up on nearly every FAR exam, usually 2-3 MCQs. The core skill the AICPA tests: can you spot which treatment applies (retrospective, prospective, or a prior period adjustment)? The classic trap is a change in depreciation method. It looks like a principle change, but ASC 250 treats it as a change in estimate effected by a change in principle, so it's prospective only, with no restatement. Lock that distinction in. And remember: error corrections always go to retained earnings (net of tax), never through current income.
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What AICPA wants you to know
- 1Distinguish the three types of accounting changes and one error correction category
- 2Apply retrospective treatment to changes in accounting principle
- 3Apply prospective treatment to changes in accounting estimate
- 4Record error corrections as prior period adjustments to retained earnings
- 5Explain the change in reporting entity and its required treatment