How do changes in accounting estimates typically occur?

Changes in accounting estimates typically occur based on changes in circumstances, new information, or more experience. This reflects the dynamic nature of financial reporting, where estimates are often revised to better align with the current understanding of economic events and conditions impacting the company.

For instance, when a company initially estimates the useful life of an asset, this estimation may change as it gains more experience in using the asset, or if new information suggests that the asset may have a shorter or longer useful life than initially thought. Similarly, shifts in market conditions or operational realities can lead to adjustments in estimates related to inventory valuation, bad debts, or warranty obligations.

This option acknowledges that estimating is not static; rather, it is a continuous learning process that improves with time and better data, thereby reflecting the best available information at the reporting date.

In contrast, the other options imply situations that do not directly lead to changes in estimates. For example, changes in legislation or accounting standards may necessitate changes in accounting policies rather than estimates themselves. Additionally, limiting changes to only year-end reviews ignores the iterative nature of accounting estimates, which can and should be updated throughout the fiscal period as new information arises.