Why might management choose to change accounting policies and how should such changes be addressed to maintain comparability?

• A. To reflect economic reality or align with new standards; changes require full disclosure and retrospective or prospective application as required; comparatives may need restatement.
• B. To improve current year's appearance; changes require no disclosure.
• C. To hide poor performance; changes may be applied retroactively without disclosure.
• D. To simplify the accounting; no effect on comparatives.

Answer: (B)

Management changes accounting policies mainly to better reflect economic reality or to align with new or revised standards. When a policy change is made, disclosure is required in the notes, explaining what changed and why, and the financial statements must be adjusted in a way that preserves comparability over time. The usual method is retrospective application—restating prior period comparatives as if the new policy had always been used. If restating is impractical, a prospective approach from the date of change is allowed, with clear disclosure of why restatement isn’t done. This approach keeps users informed and enables meaningful comparisons between periods.