1. Retrospective Change in Accounting Policy
A change in accounting policy is made only if it is required by a new standard or results in financial statements providing more reliable and relevant information.
  • Treatment: Applied retrospectively. The entity must adjust the opening balance of each affected component of equity for the earliest prior period presented, and alter the other comparative amounts disclosed for each prior period as if the new accounting policy had always been applied.

2. Prospective Change in Accounting Estimate
Accounting estimates (e.g., provisioning for bad debts, adjusting useful asset lives, or changing salvage values) arise due to uncertainties inherent in business activities.
  • Treatment: Applied prospectively. The change is recognized in the period of the change if it affects that period only, or in the period of the change and future periods if it impacts both. Prior periods are never altered for changes in estimates.

3. Correction of Prior Period Errors
Errors can arise from mathematical mistakes, misapplications of accounting policies, oversights, or misinterpretations of facts.
  • Treatment: Prior period errors must be corrected retrospectively via a restatement. The company must restate the comparative amounts for the prior period(s) presented in which the error occurred. If the error occurred before the earliest prior period presented, the opening balances of assets, liabilities, and equity for that earliest period must be adjusted.

 
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