Although consistency and comparability are desirable, changing to a new method sometimes is appropriate.
We report most voluntary changes in accounting principles retrospectively.
1. Revise Comparative Financial Statements
(FIFO usually produces lower cost of goods sold and thus inventory than does LIFO. When costs are rising, FIFO produces lower cost of goods sold than does LIFO and thus higher net income and retained earnings. Retained Earnings is revised each year to reflect FIFO. By FIFO, cogs is lower. The cumulative income effect increases each year by the annual after-tax difference in COGS. INventory, pretax income, income taxes, net income, and retained earnings are all higher).
2. Adjust accounts for the change.
3. Disclosure notes; footnote disclosure explains why the change was needed as well as its effects on items not reported on the face of the primary statements.