Cumulative Effect of Change in Accounting Principle

Most changes in accounting principle are reported using the cumulative effect approach. The cumulative effect is equal to the difference between the amount of beginning retained earnings in the period of change and what the retained earnings would have been if the accounting change had been retroactively applied to all prior affected periods. It includes direct effects and only those indirect effects that are entered in the accounting records. Changes in accounting principle are normally reported using the cumulative effect approach and are reported retrospectively as a change to the opening balance of retained earnings of the earliest year presented if the cumulative effect can be determined. See also change in accounting principle.