AICPA Exam CPA-Financial Topic 2 Question 66 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 66
Topic #: 2

On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.

Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.

This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.

Item to Be Answered

Quo manufactures heavy equipment to customer specifications on a contract basis. On the basis that it is preferable, accounting for these long-term contracts was switched from the completed-contract method to the percentage-of-completion method.

List A (Select one)

AChange in accounting principal.

BChange in accounting estimate.

CCorrection of an error in previously presented financial statements.

DNeither an accounting change nor an accounting error.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. The concept of reliability in financial reporting includes; neutrality, representational faithfulness and verifiability.

Choices 'a', 'b', and 'c' are incorrect, per the above.

by Alisha at Feb 28, 2023, 04:47 PM

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Goldie

1 hours ago

I agree with the others, A) Change in accounting principle is the correct answer here. Quo made a specific decision to change their accounting method, so it fits the description of a change in principle rather than an estimate or error correction.

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Willetta

7 days ago

Haha, this is a classic accounting trick question. They're trying to get you to overthink it, but the answer is clear - it's a change in accounting principle. Quo made a conscious decision to change their method, so A) is the way to go.

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Malika

10 days ago

But the switch from completed-contract method to percentage-of-completion method seems more like a change in accounting principle to me.

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Regenia

11 days ago

I'm not sure about this one. At first, I thought it might be a change in accounting estimate, but the question states that Quo 'switched' the method, which implies a deliberate change in policy rather than an update to an estimate. I'll go with A) Change in accounting principle.

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Ettie

12 days ago

I disagree, I believe the correct answer is B) Change in accounting estimate.

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Deane

12 days ago

I think the correct answer is A) Change in accounting principle. Switching from the completed-contract method to the percentage-of-completion method for long-term contracts is a change in the fundamental way Quo accounts for these transactions, which fits the definition of a change in accounting principle.

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Malika

13 days ago

I think the answer is A) Change in accounting principal.

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