Is it an accounting estimate or an accounting principle that’s being changed?

The thing with changes is that whilst they’re allowed under certain circumstances, it’s always the question of whether something really counts for a change in principle or it’s just a change in an estimate. An accounting estimate also results in a change sort of, either an impairment, a new model for calculating an allowance etc. As you’re using new methods for accounting in certain areas, it’s easy to get things mixed between change in an accounting principle and accounting estimate. 

First and foremost, how does one may a difference between the two? The distinction is made based on the subject matter of the change. Are there various options one can choose from the guideline or is simply an input to an estimate that was changed? If the accounting framework allows for different treatments and we’ve decided to go with another from this point, it’s an accounting principle change. However, if the receivables still need to be valued for their collectability and we decide to write down all receivables older than 90 days as opposed to 60 days that was used before, it’s a change in accounting estimate. Nothing new was selected accounting principle wise.

The reason why it matters so arises from the fact how you’d normally treat an accounting principle change as opposed to a change in accounting estimate. The thing with treating changes in accounting estimates is that they’re never done retrospectively and always prospective. It’s always the time the estimate changed that’s used as a moment to make the accounting entry sort of say. Change in accounting principles in opposite is something that’s almost always accounted retrospective. Obviously it’s subject to those guidelines one gets with specific standards, but more often they’re accounted for retrospective, i.e. comparative figures are changed to comply with the new principles.