Errors | Changes in Accounting Estimates |

Errors refer to mistakes made in financial statements that were not intentional, such as mathematical errors or misinterpretation of facts. Changes in accounting estimates, on the other hand, refer to revisions made to accounting estimates due to new information or changes in circumstances.

Errors can be corrected by adjusting the financial statements for the period in which the error occurred, while changes in accounting estimates are reflected in the financial statements in the period in which the estimate is revised.

Errors can have a significant impact on the financial statements and may require restatement of prior period financials, while changes in accounting estimates are a normal part of the accounting process and do not necessarily indicate any wrongdoing.

Overall, errors are unintentional mistakes that need to be corrected, while changes in accounting estimates are adjustments made based on new information or circumstances.

Errors

- Omissions or misstatements in financial statements that arise from oversight or misinterpretation of facts existing at the time the financial statements are prepared.
- Involve corrections to prior periods and have a retroactive effect on retained earnings.

Changes in Accounting Estimates

- Adjustments made to existing accounting principles to reflect new information or developments.
- Are prospective in nature and do not require adjustments to prior periods.

Key Differences

| Feature | Errors | Changes in Accounting Estimates |
|---|---|---|
| Nature | Incorrect information | Revised information |
| Effect on Prior Periods | Retroactive correction | No adjustment |
| Balance Sheet Impact | Retained Earnings | No direct impact |
| Methodology | Correction of past mistakes | Adjustment based on new information |