Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Textbook Question
Chapter 15, Problem 45RSCQ
The accounting and auditing literature discusses several different types of accounting changes. For each of the changes listed below (a. through c.), indicate whether the auditor should add a paragraph to the audit report, assuming that the change had a material effect on the financial statements and was properly justified, accounted for, and disclosed. Assume that the organization is a U.S. non-public company.
a. Change from one GAAP to another GAAP
b. Change in accounting estimate not affected by a change in accounting principle
c. Change in accounting estimate affected by a change in accounting principle
d. Correction of an error
c. Change from non-GAAP to GAAP (a special case of correction of an error)
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The accounting and auditing literature discusses several different types of accounting changes. For each of the changes listed below (a. through e.), indicate whether the auditor should add a paragraph to the audit report, assuming that the change had a material effect on the financial statements and was properly justified, accounted for, and disclosed. Assume that the organization is a U.S. nonpublic company.
a. Change from one GAAP to another GAAP
b. Change in accounting estimate not affected by a change in accounting principle
c. Change in accounting estimate affected by a change in accounting principle
d. Correction of an error
e. Change from non-GAAP to GAAP (a special case of correction of an error)
The accounting and auditing literature discusses several different types of accounting changes. For each of the changes listed below (a. through e.), indicate whether the auditor should add a paragraph to the audit report, assuming that the change had a material effect on the financial statements and was properly justified, accounted for, and disclosed. Assume that the organization is a U.S. nonpublic company.
a. Change from one GAAP to another GAAP
b. Change in accounting estimate not affected by a change in accounting principle
c. Change in accounting estimate affected by a change in accounting principle
d. Correction of an error
e. Change from non-GAAP to GAAP (a special case of correction of an error)
PLEASE ANWSER ONLY SECTION D & E THANK YOU!
Which of the following would be
considered a change that affects
consistency? *
Change in accounting estimate.
O Change in reporting entity.
Change in classification and
reclassification.
Chapter 15 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
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- According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, an entity must select and apply its accounting policies consistently from one period to the next and among various items in the financial statements. However, an entity may change its accounting policies under certain conditions. Required: Identify the circumstances under which it may be appropriate to change accounting policy in accordance with the guidance given in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.arrow_forwardWhich type of audit report specifies that financial statements do not present fairly the financial position, results of operations, and cash flows in conformity with accounting standards? A. Qualified report B. Adverse report C. Unqualified report D. Disclaimer of opinionarrow_forwardAccording to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, an entity must select and apply its accounting policies consistently from one period to the next and among various items in the financial statements. However, an entity may change its accounting policies under certain conditions.Identify the circumstances under which it may be appropriate to change accounting policy in accordance with the guidance given in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.arrow_forward
- When comparative financial statements are presented but the predecessor auditor's report is not presented, the current auditor should do which of the following in the audit report? a. Disclaim an opinion on the prior year's financial statements. b. Identify the predecessor auditor who audited the financial statements of the prior year. c. Indicate the type of opinion expressed by the predecessor auditor. d. Make no comment with respect to the predecessor audit. e. Include a KAM paragraph that indicates the refusal by the predecessor auditor to re-issue the prior-year opinion.arrow_forwardHow is the auditors’ responsibility for expressing the opinion on financial statements disclosed in the standard (unmodified) report for a nonpublic company?a. Stated explicitly in the Auditor’s Responsibility section.b. Unstated but understood in the Auditor’s Responsibility section.c. Stated explicitly in the opinion paragraph.d. Stated explicitly in the introductory paragraph.arrow_forwardThe client has restated the prior-year statements because of a changefrom LIFO to FIFO. How should this be reflected in the auditor’s report?arrow_forward
- Changes in accounting policy are Permitted if the change will result in a more reliable and more relevant presentation of the financial statements. Permitted if the entity encounters new transactions, events or conditions that are substantively different from existing or previous transactions. Required for all material transactions. Required if an alternate accounting policy gives rise to a material change in assets, liabilities or the current year net income.arrow_forward(B) Unusual Items: Please give two examples of “unusual items” and explain if these items affect the current period income statement or a prior period income statement. Why should these particular items be reported separately on the income statement? Please be specific. (C) Audit Reports: (1) What types of companies are required to obtain an independent audit and what is the purpose of the Audit Report? (2) An “unqualified opinion” doesn’t sound very favorable; in fact, it sounds like the person giving the opinion does not have the proper credentials. Please clarify this issue. Wouldn’t a company rather receive a “qualified opinion?” Also, does a clean opinion mean the financial statements are 100% error-free? Please explain.arrow_forwardType I Subsequent Events in auditing are : A. Are those events that provide new information about conditions existing at balance sheet date requiring adjustments in the financial statements. B. Involve events occurring after balance sheet date but not requiring to be disclosed in financial statements C. Provide new information about conditions occuring after the balance sheet date and requiring adjustments in financial statements. D. Involve events occurring after balance sheet date and require to be disclosed in financial statementsarrow_forward
- Under IFRS, changes in accounting policies are a. permitted if the change will result in a more reliable and more relevant presentation of the financial statements. b. permitted if the entity encounters new transactions, events, or conditions that are substantively different from existing or previous transactions. c. required on material transactions, if the entity had previously accounted for similar, though immaterial, transactions under an unacceptable accounting method. d. required if an alternate accounting policy gives rise to a material change in assets, liabilities, or the current- year net income.arrow_forwardS1: lf an auditor's report on the prior period included a modified opinion and the matter which gave rise to the modification is unresolved, the auditor's opinion on the prior period's financial statements should be modified. S2: The auditor's opinion on comparative financial statements should refer to each period for which financial statements are presented and on which an audit opinion is expressed. S3: Reference to the work of an auditor's expert in an auditor's report containing an unmodified opinion unless required by law or regulation to do so. O S1 and S2 are true O S2 and S3 are true O All statements are true O All statements are falsearrow_forwardQUESTION 1 In an unqualified audit report on the financial statements of a public company, what does the first statement of the opinion paragraph state? A. An audit was conducted, which financial statements were audited, and the dates of the financial statements. B. PCAOB audit standards were followed since it is a public company. C. The audit firm believes that its audit provides a reasonable basis for its opinion. D. Management is responsible for the fair presentation of the financial statements.arrow_forward
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