There are three approaches for reporting chanes in principles:
Currently-the cumulative effect of the change is reported in the current year's income as
a special item.
Retrospectively-the cumulative effect of the change is reported as an adjustment to retained earnings. The prior year's statements are changed on a basis consistent with the newly adopted principle.
Prospectively-no adjustment is made for the cumulative effect of the change. Previously reported results remain unchanged. The change shall be accounted for in the period of the change and in subsequent periods if the change affects future periods.
The FASB believes that the retrospective approach provides financial statement users the most useful information. Under this approach, the prior statements are changed on a basis consistent with the newly adopted standard; any cumulative effect of the change for prior periods is recorded as an adjustment to the beginning balance of retained earnings of the earliest period reported.
What are some of the similarities and differences between US GAAP and iGAAP with respect to reporting accounting changes?