Distinguish among: a) change in accounting policy b) change in accounting estimate and c) accounting error - - - - Change in accounting policy is a general rule which must be applied retrospectively in the financial statements. Meaning to say that the company must adjust all the comparative amounts of prior years in the current year due to such change in the financial statement. For example, if you change your inventory valuation method from FIFO into average method, so this change accounting policies should be change retrospectively. Change in accounting estimate is normal and expected. It arises from the appearance of new information that alters the existing situation. Therefore, the absence of new information can’t occur changes in estimate. When there is a change in estimate, account for it in the period of change. Accounting policies and estimation are made to make financial statements relevant and reliable for the user and economic condition on the reporting date. Accounting error was not intentional error in accounting entry, it is often immediately fixed. It can include duplicating the same entry, or an account is recorded correctly but to the wrong customer or vendor. Give two examples of financial statement items that may require estimates. - Goodwill Warranty Estimates How is a change in accounting estimate reported? - A change in accounting estimate is accounted for prospectively. Accounting changes that result in financial statements of a different reporting entity are reported prospectively by restating all prior periods.