Consistency of F/S

Question 1

What four specific matters should the auditor evaluate when the entity’s financial statements include a material change in accounting principle?

Answer 1

1. )Whether the adopted principle is in accordance with the applicable reporting framework
2. )Whether the method of accounting for the effect of the change is in accordance with the applicable reporting framework
3. )Whether the disclosures about the change are adequate
4. )Whether the entity has justified that the alternative adopted is preferable

Question 2

What is the auditor’s responsibility with respect to consistency on audited financial statements presented on a comparative basis?

Answer 2

The auditor should evaluate the consistency between all such periods presented as well as the consistency of the earliest period covered by the auditor’s opinion with the previous period.

Question 3

What is the effect on the auditor’s report when an entity’s financial statements have been restated to correct a prior material misstatement (assuming that disclosure related to the restatement is adequate)?

Answer 3

The auditor’s report should include an emphasis-of-matter paragraph to describe the restatement and reference the footnote that discusses the correction. The auditor should also state that the auditor’s opinion is not modified with respect to the matter.

Question 4

When a material change in accounting principle has been properly accounted for by the entity’s financial statements (with adequate disclosure and justification that the adopted principle is preferable), what is the effect on the auditor’s report?

Answer 4

The auditor’s report should include an emphasis-of-matter paragraph to describe the change and reference the footnote that discusses the change. The auditor should also state that the auditor’s opinion is not modified with respect to the matter.

Question 5

What two general circumstances may affect the comparability of an entity’s financial statements between periods?

Answer 5

1. )A change in accounting principle

2. )A material restatement of the financial statements (to correct a previous material misstatement)