PCAOB on Consistency of F/S

Question 1

What effects on the auditor’s report, if any, does a change in the reporting entity resulting from a transaction or event, such as the purchase or disposition of a subsidiary, have?

Answer 1

The auditor’s report does not require recognition of the matter.

Question 2

What effects on the auditor’s report, if any, does a correction of a material misstatement to previously issued financial statements have?

Answer 2

The auditor’s report should include an explanatory paragraph describing the inconsistency. The auditor should evaluate the adequacy of the company’s disclosure regarding any such restatement.

Question 3

List the four criteria the auditor should evaluate when there is a change in accounting principle.

Answer 3

1. )Whether the newly adopted principle is generally accepted accounting principles (GAAP)
2. )Whether the method of accounting for the effect of the change conforms to GAAP
3. )Whether the disclosures related to the change are adequate
4. )Whether the company has justified that the alternative accounting principle is preferable

Question 4

What are the two specific matters that affect the auditor’s evaluation of consistency of financial statements as prescribed by Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 4

1. )A change in accounting principle

2. )A restatement to correct a misstatement in previously issued financial statements

Question 5

What effects on the auditor’s report, if any, does a change in the classification in previously issued financial statements have?

Answer 5

The auditor’s report does not usually require recognition of the matter unless the change represents a change in accounting principle or the correction of a material misstatement.