Final answer:
The FASB requires retrospective application of both direct and indirect effects of a change in accounting principle.
Step-by-step explanation:
The statement is true.
The Financial Accounting Standards Board (FASB) requires companies to apply changes in accounting principles retrospectively. This means that when a company changes its accounting principle, it should adjust its financial statements for both direct and indirect effects of the change. Retrospective application ensures that the financial statements provide a consistent and comparable representation of the company's financial position and performance over time.
For example, if a company changes its accounting principle for revenue recognition, it would not only adjust the current period's revenue but also restate the prior period's revenue to reflect the new principle. This allows users of the financial statements to make meaningful comparisons and understand the impact of the accounting change on historical information.