The concept appears to be almost entirely based on the feasibility AND practicality of the retrospective adjustment. In simple term: When changing accounting principal, if it's going to be a huge and expensive ordeal to try to calculate the change retrospectively; just be a reasonable person and treat it as a change in estimate.
I'd learn the usual application (depreciation, depletion, LIFO, etc) of this rule, but be on the lookout for a curve ball.
For example: Company ABC decided to change their inventory method from weighted-average to LIFO in the current year. This change is appropriately deemed a change in accounting principal by ABC's CFO. Since inception, ABC has used a state of the art inventory system capable of tracking detailed inventory information using various GAAP inventory methods of accounting, including LIFO. How should ABC treat this change in accounting principal?
However impossible and ridiculous this scenario may be in the real world; in the CPA Exam World, the answer would likely be: “Treat the change as a change in accounting principal and use retrospective application”
The point I'm trying to make here is apply the RULE as intended. Don't assume just because it's a change to LIFO we can all pack our bags and head home early. “Hey guys, I got this. I read in Becker that LIFO is one of those that we treat as a change in estimate only. Nice try CPA Exam”
You'd likely be wrong. ABC's situation does not meet any of the criteria noted in a), b), or c) below, therefore we must assume the change will be retrospectively applied. I made this question up, but I'm confident it's correct for CPA Exam purposes.
ASC 250-10
45-9 It shall be deemed impracticable to apply the effects of a change in accounting principle retrospectively only if any of the following conditions exist:
a. After making every reasonable effort to do so, the entity is unable to apply the requirement.
b. Retrospective application requires assumptions about management's intent in a prior period that cannot be independently substantiated.
c. Retrospective application requires significant estimates of amounts, and it is impossible to distinguish objectively information about those estimates that both:
1. Provides evidence of circumstances that existed on the date(s) at which those amounts would be recognized, measured, or disclosed under retrospective application
2. Would have been available when the financial statements for that prior period were issued.
45-10 This Subtopic requires a determination of whether information currently available to develop significant estimates would have been available when the affected transactions or events would have been recognized in the financial statements. However, it is not necessary to maintain documentation from the time that an affected transaction or event would have been recognized to determine whether information to develop the estimates would have been available at that time. [FAS 154, paragraph 11]
-- Formerly known as 'PeterOlinto' --
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