In this blog post, we will be discussing ASC 250: Accounting Changes and Error Corrections. This Topic provides guidance on accounting for and reporting accounting policy changes and correcting errors.
What is GAAP?
GAAP is a common set of accounting principles, standards, and procedures. Public companies in the United States must follow GAAP when they compile their financial statements. To that end, the Financial Accounting Standards Board (FASB) maintains GAAP. Moreover, the board issues new rules as necessary to ensure that GAAP remains up-to-date.
Where Can I Research GAAP?
FASB provides free online access to the Accounting Standards Codification, which is the only authoritative source for US GAAP. FASB and the AICPA also provide access to other authoritative literature that supplements the GAAP Hierarchy.
To access the Accounting Standards Codification, visit asc.fasb.org. Anyone can access the codes using a basic account. For more advanced features you can set up a professional account. To that end, if you work at a company subject to GAAP rules, your company likely has a professional account.
What is ASC 250?
ASC 250 is a rule that addresses how to account for and report accounting changes and error corrections. ASC 250-10 specifically defines the requirements for changes and corrections
An accounting change can be a change in an accounting principle, an accounting estimate, or the reporting entity. ASC 250-10 establishes retrospective application as the required method for reporting a change in accounting principles unless the change is due to an update to GAAP. This Subtopic also provides guidance for handling changes that would be impractical to make retroactively.
If you fix an error, FASB does not consider that an accounting change. However, fixing an error involves adjusting previously submitted and approved financial statements. Therefore, this section also addresses corrections and how to handle their impact on previous financials.
This Subtopic also:
- Provides guidance on error corrections in comparative statements for two or more periods
- Lays out the disclosures required when previously issued statements of income are restated
- Gives companies methods of presentation of historical, statistical-type financial summaries that are affected by error corrections.
Why Does It Matter?
The presentation and disclosure of financial statements can have a major impact on the decisions made by users of those statements. For example, if a company or individual is considering investing in another company, the investor will want to know any errors in financial statements or changes in methodology that could impact the valuation of the company.
ASC 250 follows the framework set by ASC 205 and requires companies to adequately disclose their accounting policies and the impact their policies have on the financial statements provided.
This section ensures that investors have enough information to make informed decisions and that companies cant mask their performance.
In this blog post, we have discussed ASC 250: Accounting Changes and Error Corrections. This Topic provides guidance on accounting for and reporting accounting policy changes and correcting errors.
We have learned that ASC 250-10 defines the requirements for changes and corrections. An accounting change can be a change in an accounting principle, an accounting estimate, or the reporting entity.
We have also learned that fixing an error is not considered an accounting change but does involve adjusting previously submitted and approved financial statements. ASC 250 provides guidance on these types of error corrections.
This additional information allows investors to get a better understanding of the company’s affairs and make more informed decisions. ASC 250 is important for companies to follow in order to maintain transparency and provide accurate information to their investors. Thanks for reading!
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