What should be reported as a separate component in the statement of revenues, expenses, and changes in net assets when there’s a change in accounting principles?

The cumulative effect of a change in accounting principles is an important consideration in financial reporting. When there is a change in accounting principles, the Financial Accounting Standards Board (FASB) requires that the cumulative effect of that change is reported separately within the statement of revenues, expenses, and changes in net assets. This allows users of the financial statements to see the impact of the accounting change on net assets at the beginning of the period.

This reported change typically reflects the adjustment necessary to translate prior periods’ financial statements to align them with the new accounting principle. By presenting it as a separate component, it provides clarity and helps stakeholders understand the implications of the transition on the organization’s financial condition without obscuring it within normal operating results or other adjustments.

While other choices may involve aspects of reporting changes in accounting practices, they do not address the primary requirement to show the cumulative effect separately, which is pivotal to maintain transparency in accounting practices.