According to Accounting Changes and Errors Corrections, which of the following is NOT the type accounting change that must be disclosed to avoid misleading the user of financial statements?

Question

Options

• Aaccounting principles
• Bestimates
• Creporting entities
• Dliability omissions

• A
  5% (3)
• B
  15% (8)
• C
  2% (1)
• D
  78% (43)

Explanation

Option D (liability omissions) is correct because it is not a recognized category of accounting change under the Accounting Changes and Error Corrections standard (ASC 250 / APB Opinion No. 20) - it is an accounting error, not an accounting change, and would be handled through a prior period error correction rather than as a change disclosure.

Options A, B, and C are all legitimate types of accounting changes that require disclosure: changes in accounting principles (e.g., switching inventory methods from FIFO to LIFO), changes in estimates (e.g., revising asset useful lives or bad debt rates), and changes in reporting entity (e.g., changing which subsidiaries are consolidated) - all three can materially affect financial statement comparability if not disclosed.

Memory tip: Use the acronym P-E-R to remember the three valid types - Principles, Estimates, Reporting entity. Anything outside PER (like an omitted liability) is an error, not a change - and errors get corrected, not just disclosed as a change type.

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