Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 13 - Financial Analysis: The Big Picture - Brief Exercises: BE13-3

Answer

A change in accounting principle occurs when the principle used in the current year is different from the one used in the preceding year. The change from the LIFO method of inventory pricing to FIFO method is a change in accounting principle. Such changes should be properly explained in the financial statements, which are more informative for statement users.

Work Step by Step

Accounting rules permit a change when management can show that the new principle is preferable to the old principle.
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