Accounting Changes and Error Corrections

ASC 250 sets out how entities report accounting changes and correct errors. The Overall Subtopic (250-10) establishes the framework: a change in accounting principle is applied retrospectively and is permitted only if required by a Codification update or justified as preferable; a change in accounting estimate (including a change in depreciation, amortization, or depletion method, which is a change in estimate effected by a change in principle) is accounted for prospectively in the period of change and future periods; a change in reporting entity is applied retrospectively; and an error in previously issued statements is corrected by restatement, excluded from current net income. Retrospective application captures only direct effects (indirect effects go to the period of change) and may be scaled back only when "impracticable" under the narrow conditions of 250-10-45-9. Two industry Subtopics apply this framework: 250-978 treats a time-share redelineation driven by a significant change in facts and circumstances as a change in estimate (current-period adjustment per 978-330-35-1) but a mere rephasing as a change in the method of applying a principle, and 250-980 provides that a change in method by a regulated entity is reported like an unregulated entity's unless it affects costs allowable for rate-making, in which case it generally follows regulatory implementation.

Subtopics

1. 10Overall83 ¶

   ASC 250-10 governs how entities report the three types of accounting changes (change in accounting principle, change in accounting estimate, change in reporting entity) and the correction of errors in previously issued financial statements. The default rule is retrospective application for changes in principle and changes in reporting entity, prospective treatment (current and future periods) for changes in estimate, and restatement for error corrections. A change in principle is permitted only if required by a Codification update or justified as preferable, and retrospective application may be limited only where it is "impracticable" under the narrow conditions in 250-10-45-9.

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2. 978Real Estate—Time-Sharing Activities3 ¶

   This Subtopic tells time-share sellers how to account for a change in the delineation of a time-share project or its phases. If the change results from a significant change in facts and circumstances about the project's development (e.g., major sales price or discount revisions, construction cost or inflation changes, temporary construction delays, design changes, or a shift toward more luxury units), it is a change in accounting estimate under Subtopic 250-10, recorded as a current-period adjustment per 978-330-35-1. If there is no such change in facts and circumstances, the change is a change in the method of applying an accounting principle under Subtopic 250-10.

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3. 980Regulated Operations8 ¶

   This Subtopic applies the general accounting change and error correction rules of Topic 250 to entities with regulated operations that meet the criteria of paragraph 980-10-15-2 (so that costs designated for future recovery by the regulator are probable of recovery). Its core rule is that a change in accounting method that does not affect costs allowable for rate-making purposes is reported the same way an unregulated entity would report it, whereas a change that does affect allowable costs is generally implemented the way it is implemented for regulatory purposes. It also confirms that prior period adjustments are limited to error corrections and prior interim period adjustments of the current fiscal year, and that previously unaccrued estimated refunds are charged to income when the accrual criteria are first met.

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