The allowance for doubtful accounts, the method of depreciation of assets, provisions for legal contingencies, hedging and derivative valuations—all of these things require estimates, and estimates always involve some assumptions. Changes in estimates impact a company’s income statement by increasing or decreasing costs and incomes. A change in estimate is made at the discretion of management, and affects the operating results of the period in which the change occurs. This makes it an information-rich disclosure, specifically with respect to the quality of earnings.
This article charts the changes in accounting estimates by year and the top ten categories of changes since the year 2000.