FASB Issues Standard as Part IASB Convergence Effort

The Financial Accounting Standards Board (FASB) has issued Statement No. 154, Accounting Changes and Error Corrections applying to all voluntary accounting principle changes as well as the accounting for and reporting of such changes. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for fiscal years beginning after June 1, 2005.

Statement No. 154 requires voluntary changes in accounting principle be retrospectively applied to financial statements from previous periods unless such application is impracticable. Changes in depreciation, amortization, or depletion for long-lived, non-financial assets accounted for as a change in accounting estimate that is effected by a change in accounting principle, under the newly issued standard. By enhancing the consistency of financial information between periods, the requirements of Statement No. 154 improves financial reporting.

Statement No. 154 replaces APB Opinion No. 20 and Statement 3. Statement 154 carries forward many provisions of Opinion 20 and Statement 3 without change including those provisions related to reporting a change in accounting estimate, a change in reporting entity, correction of an error and reporting accounting changes in interim financial statements. The FASB decided to completely replace Opinion 20 and Statement 3 rather than amending them in keeping to the goal of simplifying U.S. GAAP.

Statement No. 154 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standard Board (IASB) toward developing a single set of high-quality accounting standards.

“This is one example where the Board concluded that the IASB requirements result in better financial reporting. We were able to make a meaningful improvement in U.S. GAAP while converging with the IASB,” states Michael Crooch, FASB Board member and Board collaborator on the project.


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