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…

A change from one generally accepted accounting principle (GAAP) to another, such as switching from the completed-contract method to the percentage-of-completion method for long-term contracts, is defined as a change in accounting principle. This type of change is only permitted if the entity can justify that the new principle is preferable. The scenario states the change was made on this basis. Such changes are applied retrospectively to all prior periods presented in the financial statements to maintain comparability, unless it is impracticable to do so.

B. Change in accounting estimate: This is a revision of a previous estimate based on new information (e.g., changing a machine's useful life), not a change in the method of accounting.
C. Correction of an error in previously presented financial statements: This involves correcting a mathematical mistake or a misapplication of GAAP. The completed-contract method is an acceptable principle, so its prior use was not an error.
D. Neither an accounting change nor an accounting error: This is incorrect because the switch between two acceptable GAAP methods is explicitly defined as a change in accounting principle. ---

1. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).

ASC 250-10-20 (Glossary): Defines a change in accounting principle as "A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles to choose from, or a change in the method of applying a generally accepted accounting principle."

ASC 250-10-45-5: This section provides examples of accounting changes, stating, "The following are examples of changes in accounting principle: a. A change in the method of accounting for long-term construction-type contracts."

2. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (17th ed.). Wiley.

Chapter 22, "Accounting Changes and Error Analysis," pp. 1296-1297: The text explicitly identifies a "change in the method of accounting for construction contracts" as one of the three most common types of accounting principle changes. It further explains that such a change requires retrospective adjustment to prior years' financial statements.

3. Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2021). Intermediate Accounting (11th ed.). McGraw-Hill Education.

Chapter 4, "The Income Statement and Statement of Comprehensive Income," p. 188: This textbook presents a change from the completed contract method to the percentage-of-completion method as a direct example of a change in accounting principle that must be reported retrospectively.