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Changes in accounting estimates result from new information. Common examples of such changes include changes in the useful lives of property and equipment and estimates of uncollectible receivables, obsolete inventory, and warranty obligations, among others.

The first is a correction of an error in the financial statements that was reported for a prior period. The second type of prior period adjustment was caused by the realization of the income tax benefits arising from the operating losses of purchased subsidiaries before they were acquired.

Changes in estimates, such as the estimated useful like for a tangible asset or the bad debt allowance percentage, are accounted for on a prospective basis. This means that the current and future financial statements must reflect the change, but the company does not need to change historical periods.

Estimate changes occur when the carrying values of assets or liabilities are changed. These changes are accounted for in the period of change. Changes in accounting estimates don't require the restatement of previous financial statements.