An accounting change is a change in accounting principle, estimate, or reporting entity. A change in accounting principles, estimate, or reporting entity may lead to a difference in the result to the budgeted one. An accounting change arises from the decision of managers of the business.
Change in Accounting Principle
Accounting principles are the set of rules that should be followed to maintain clarity in accounts. GAAP and IFRS are the most common accounting principles. Change of accounting principles is changing from one GAAP to another GAAP or one IFRS to another.
Change in Accounting Estimate
Estimates are a big part of accounting. Managers need to estimate how much bad debt is going to occur, the useful life, or salvage value of an asset. There are also lots of chances that they make mistakes, and we need to adjust the estimates from time to time when we find out that our estimates are not right.
Change in Reporting Entity
A change in reporting entity occurs when two or more entities marge their financial statements for reporting pupose. If a company change the reporting entity then it should work retrospectivly to match previous financials to the present.