FY13CE Accounting common mistakes
FY13CE Accounting · Understand the traps and how to avoid them.
When a question asks for the effect of a transaction on the accounting equation or on a ratio, the candidate records only the debit side of the entry and then selects the answer choice that reflects that single side, ignoring the offsetting credit and its effect on the second account.
Double-entry is learned mechanically as 'debit this, credit that', so candidates stop the analysis at the account named in the stem. Under exam time pressure the second leg feels redundant, yet most equation and ratio questions are testing precisely the net effect on two or more accounts.
What to do instead
Before looking at the answer choices, write the complete journal entry, then list every account touched with its direction (increase/decrease) and its classification (asset, liability, equity, revenue, expense). Derive the answer from that list. Practice ten compound transactions a day until writing both legs becomes automatic.
The candidate computes depreciation or amortization for the current year and reports it as the expense, without checking whether the asset was acquired, sold, or fully depreciated partway through the year and therefore needs a partial-year or no charge.
Textbook problems usually show a full year of ownership, so the candidate pattern-matches to the annual formula. Exam stems bury the acquisition date (or a mid-year disposal) in a subordinate clause, and the candidate reads past it.
What to do instead
Adopt a fixed first step for every long-lived asset question: establish the in-service date, the disposal date, and the accumulated depreciation to date before computing anything. Compute the months in service explicitly on scratch paper. If the asset is fully depreciated, the current-year charge is zero regardless of the formula.
In process costing, the candidate computes equivalent units using units completed and transferred out plus ending work-in-process at its physical count, rather than weighting ending WIP by its percentage of completion, and then carries that error into cost per equivalent unit.
Weighted-average and FIFO equivalent-unit schedules look similar on the page, and candidates memorize one template without tracking which cost-flow assumption the stem specifies. Physical units and equivalent units are also easy to conflate under time pressure.
What to do instead
Label the schedule before computing: state the method (weighted average or FIFO) and the cost categories (materials versus conversion), because materials are often added at a different point than conversion. Build the four-line schedule - units to account for, units completed, ending WIP equivalent units, units accounted for - and confirm the two totals reconcile before dividing any costs.
The candidate treats a fixed cost as fixed per unit, or a variable cost as variable in total, when projecting the effect of a volume change on operating income or on a special-order decision.
Unit-cost figures are presented in the stem as if they were stable, and candidates multiply the full unit cost by the new volume. The distinction between total behavior and per-unit behavior is the entire point of the question, so the distractor answers are built on exactly this slip.
What to do instead
Rewrite every cost as either 'fixed in total' or 'variable per unit' before doing arithmetic. For incremental decisions, include only costs that change: relevant variable costs plus any incremental fixed cost, and exclude allocated fixed overhead. Sanity-check the result by asking whether total cost should rise proportionally with volume.
When asked which procedure would detect a specified misstatement, the candidate selects the procedure that would confirm the balance is correct in the ordinary case (for example, footing a schedule or recalculating a total) instead of the procedure directed at the specific assertion at risk.
Candidates evaluate procedures by familiarity and comfort rather than by mapping procedure to assertion. The stem's misstatement is often a completeness or cutoff problem, which vouching from the ledger outward will never catch.
What to do instead
For each question, name the assertion first (existence, completeness, valuation, rights, cutoff, presentation), then ask which direction of testing addresses it. Vouching from source documents to the ledger tests completeness; tracing from the ledger to source documents tests existence. Eliminate any choice that tests a different assertion before choosing.
The candidate reads an audit report scenario and concludes that a modified opinion is required whenever a misstatement or scope limitation exists, without weighing whether the effect is material and pervasive.
The decision tree has two dimensions (material versus pervasive, and misstatement versus scope limitation), but candidates collapse it into one dimension and default to adverse or disclaimer. The pervasiveness judgment is the discriminating step and is easy to skip.
What to do instead
Draw the two-by-two grid on scratch paper: nature of the problem on one axis (material misstatement versus inability to obtain evidence) and pervasiveness on the other (material but not pervasive versus material and pervasive). Place the scenario in a cell before looking at the choices. Remember that a qualified opinion is the answer only in the non-pervasive column.
The candidate computes taxable income by starting from book income and adjusting for permanent differences only, forgetting that temporary differences reverse across periods and therefore require deferred tax accounting rather than a simple adjustment to current tax expense.
Book-to-tax reconciliations are taught as a list of add-backs and deductions, and the deferred tax computation is treated as a separate topic. In an integrated question the candidate stops at current tax expense and never builds the deferred component.
What to do instead
After computing taxable income, classify every book-tax difference as permanent or temporary on a two-column list. Permanent differences affect only the effective rate; temporary differences generate a deferred tax asset or liability at the enacted rate expected to apply on reversal. Total tax expense equals current plus deferred, and only that total is compared to pretax book income.
The candidate answers a basis, holding period, or gain-recognition question using the fair market value of property received in an exchange, rather than the adjusted basis of the property given up (adjusted for boot received).
Fair market value is the intuitive measure of 'what it is worth' and appears prominently in the stem. Nonrecognition rules are counterintuitive, so the candidate reverts to economic intuition instead of applying the statutory framework.
What to do instead
For every like-kind or nonrecognition transaction, write the substituted basis formula explicitly: basis of property received equals basis of property given up, plus gain recognized, minus boot received. Compute realized gain first (amount realized minus adjusted basis), then recognized gain (the lesser of realized gain and boot received), then the new basis. Never use fair market value except as an input to amount realized.
The candidate answers an ethics or legal-liability question by choosing the outcome that feels morally correct or commercially sensible, rather than the rule the applicable standard or statute actually imposes on the accountant in that role.
Professional responsibility questions are written so that the sympathetic answer is a distractor. Candidates also blur the standards applicable to different engagements (audit versus review versus compilation versus tax practice) and apply the strictest one everywhere.
What to do instead
Identify the accountant's role and the governing framework in the stem before evaluating choices (auditing standards versus attestation standards versus tax practice rules versus state licensing law). Then test each choice against the specific duty owed: independence, confidentiality, due care, or reporting. Eliminate any choice that imposes a duty the framework does not require, and any choice that violates a duty it does.
The candidate assumes that a control implemented in the information system (an automated edit check, an application control, or a report generated by the system) provides reliable evidence without considering whether the program change controls, access controls, and report logic that support it have been tested.
Automated controls are described in the stem as if they simply work, and candidates treat system output as inherently more reliable than manual work. In practice an automated control is only as good as the general controls protecting the program and the data it reads.
What to do instead
For any question involving an IT-dependent control, ask three questions in order: is the program change controlled, is access to the program and data restricted, and has the report or calculation logic been tested? If any answer is no, the automated control cannot be relied upon and substantive testing is required. Treat system-generated reports as unaudited assertions until the report logic is verified.