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NEW QUESTION: 1
When there is a significant change in accounting principle, an auditor's report should refer to the lack of
consistency in:
A. The scope paragraph.
B. An explanatory paragraph following the opinion paragraph.
C. The opinion paragraph.
D. An explanatory paragraph between the second paragraph and the opinion paragraph.
Answer: B
Explanation:
Explanation/Reference:
Explanation:
Choice "D" is correct. When there is a significant change in accounting principle, the auditor's report
should refer to the lack of consistency in an explanatory paragraph following the opinion paragraph. The
explanatory paragraph should identify the change and refer to the note in the FS that discusses the
change in detail. The auditor's concurrence with the change in GAAP is implicit, unless he or she takes
exception.
Choice "A" is incorrect. Lack of consistency is not a scope limitation.
Choice "B" is incorrect. An explanatory paragraph is often inserted between the second paragraph and
opinion paragraph. However, where a change is accounted for in accordance with GAAP, the explanatory
paragraph should follow the unqualified opinion paragraph.
Choice "C" is incorrect. The lack of consistency would not be disclosed in an opinion paragraph unless the
auditor does not concur and wishes to qualify the opinion. In such case an explanatory paragraph would
precede the opinion paragraph and the opinion paragraph would be qualified.