Why Is There Risk of Earnings Overstatement in Accounting for Construction

question 21

Multiple Choice

Why is there risk of earnings overstatement in accounting for construction contracts?

• A)The long term nature of such contracts makes them a low risk area.
• B)Allocation of revenue and expenses between two or more periods simplifies the accounting.
• C)Significant professional judgment is required to make estimates used in the calculations.
• D)Percentage of completion method reduces the potential for earnings management, manipulation and errors.

---

Definitions:

Gardner

Refers to Howard Gardner, a developmental psychologist best known for his theory of multiple intelligences, which suggests people have different kinds of intelligences.

Stereotype Vulnerability

Refers to the risk of conforming to stereotypes about one's social group, potentially affecting self-esteem and performance.

Manual Dexterity

The skillful use of one's hands when performing tasks. It involves the coordination of muscular, skeletal, and neurological functions.

Reaction Range

A concept in genetics that the phenotype (expressed traits) of an individual varies within a range, determined by environmental conditions on the genotype.