Which circumstance requires a company to disclose changes in accounting principles?

The need for a company to disclose changes in accounting principles arises specifically when there are actual changes in the accounting methods used for financial reporting. Such changes might occur due to the adoption of new accounting standards or a decision to change from one accepted accounting method to another that provides more reliable or relevant financial information.

Disclosing these changes is essential because it allows stakeholders to understand the context of the financial statements, enhances transparency, and ensures comparability across financial periods. The users of financial statements—such as investors, creditors, and analysts—rely on consistent accounting methods to evaluate a company’s financial health and performance accurately.

Understanding this requirement helps stakeholders grasp the effects of different accounting choices made by the company, which may impact the financial results and positions presented. Also, it assures confidence in the integrity of the financial reporting process, aligning with the broader principle of full disclosure in financial reporting.