How do companies report changes in estimates?

When companies experience changes in estimates, they adopt a prospective approach. This means that the effects of the change are applied to the financial statements starting from the period of the change going forward, rather than adjusting or restating prior periods' financial statements.

For instance, if a company revises its estimate of warranty expenses or the useful lives of fixed assets, the new estimates will influence the amounts recognized in subsequent periods but not alter the financial results of past periods. This approach is consistent with the accounting principle that financial statements should reflect the economic conditions and circumstances as they are currently understood, rather than attempting to look back and adjust prior reports for estimates that were made based on the information available at that time.

The other options focus on retrospective adjustments or disclosures, but such methods are not applicable for changes in estimates, which distinguishes them from changes in accounting principles or errors that would warrant prior period restatements.