Normally, a material effect from changing accounting principles should be reported
A)as an extraordinary item
B)as a retrospective adjustment
C)by including the cumulative effect of the change as a separate line item in current income from continuing operations
D)by including the cumulative effect of the change on prior periods' earnings as a component of net income in the period of the change

Question

Quizplus · Accepted Answer

Changing accounting principles is typically handled as a retrospective adjustment. This means that prior period financial statements are adjusted to reflect the application of the new accounting principle as if it had been applied all along. This approach ensures comparability across periods. Extraordinary items are no longer recognized in accounting practices, and including the cumulative effect in current income or as a component of net income in the period of the change does not align with current accounting standards for changes in accounting principles.

Normally, a Material Effect from Changing Accounting Principles Should Be