How should the effect of a change in accounting principle be treated in the proprietary fund statement of changes in net assets?

When there is a change in an accounting principle, the correct treatment in the proprietary fund statement of changes in net assets is to directly adjust the beginning net assets. This approach reflects the cumulative effect of the change in accounting principle on the financial statements. By making this adjustment to beginning net assets, the financial statements maintain continuity and provide a clearer picture of the entity's financial position.

This method also aligns with generally accepted accounting principles (GAAP), particularly for proprietary funds, ensuring that users of the financial statements can see the effects of the accounting changes in a straightforward manner. Directly adjusting beginning net assets allows stakeholders to assess the impact of the change without needing to sift through separate line items or prior period adjustments that could complicate the understanding of the fund's financial position.