Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 14 – Adjustments to Beginning Net position, Fund Balances or Fund Net Position
Change in Accounting Principle

A change in accounting principle is the application of an accounting principle to transactions or other events of a similar type that is different from the one previously applied. Once adopted, an accounting principle must be applied consistently for all transactions and other similar events.

A change in accounting principle occurs from either:

• A change from one GAAP accounting principle to another GAAP accounting principle that is justified on the basis that it preferable to the previous principle. Preferability is based on understandability, reliability, relevance, timeless, consistency and comparability.
  – or –
• The implementation of new GASB pronouncements. In this case, no justification is needed.

The following items are not considered changes in accounting principle. The initial adoption and application of an accounting principle for transactions or other events that are:

• Clearly different in substance from previous transactions or events.
• Occurring for the first time.
• Previously insignificant in their effect.
• A change from applying non-GAAP treatments to GAAP treatments to transactions or other events that previously were significant, which is merely an error correction.

Traditionally, most accounting pronouncements include transition guidance in the last few paragraphs. Going forward, accounting pronouncements will only have transition guidance if they are different from the guidance in GASB 100.

Reporting

Agencies must retroactively report changes in accounting principle by restating financial statements for all prior periods presented (if practicable). Report any cumulative effect of the change in accounting principle on prior periods to those presented as a restatement of beginning net position, fund balance or fund net position of the earliest period presented. Restate each individual prior period presented to reflect the period-specific effects of applying the new accounting principle. Do not restate periods that are not included in the basic financial statements.

If restatement of all prior periods presented is not practicable, report the cumulative effect as a restatement of beginning net position, fund balance or fund net position (as applicable) for the earliest period restated (i.e., the earliest period for which it is practicable to apply the newly adopted accounting principle).

Disclosures

Agencies must make the following disclosures in the financial statement notes for each change in accounting principle:

• The nature of the accounting principle change, including the financial statement line item affected (except for totals and sub-totals) or the new pronouncement that was implemented.
• The reason for the change in accounting principle and the basis of preferability (except for the implementation of a new pronouncement).
• If prior periods presented are not restated because it is not practicable, disclose the reason why the restatement is not practicable.
• The effects on beginning net position, fund balance or fund net position (as applicable).

Agencies must disclose the justification of any changes on the basis that it is preferable to the principle or methodology used prior to the change.