If management fails to provide adequate justification for a change from one generally accepted accounting principle to another, the auditor should
A)Add an explanatory paragraph and express a qualified or an adverse opinion on the company's financial statements for lack of conformity with generally accepted accounting principles.
B) Disclaim an opinion on the company's financial statements because of uncertainty.
C)Disclose the matter in a separate explanatory paragraph(s) but not modify the opinion paragraph on the company's financial statements.
D)Neither modify the opinion on the company's financial statements nor disclose the matter because both principles are generally accepted.
From the AICPA:
Reporting Voluntary Changes in Accounting Principles
When financial statements include a voluntary change in accounting principle that
has a material effect on the financial statements, such change ...
This solution identifies the correct course of action for the Auditor and justifies why by referencing from the AICPA.
Changing from Average Cost to LIFO
Wade Corporation has been your audit client for several years. At the beginning of the current year, the company changed its method of inventory valuation from average cost to last in, first out (LIFO). The change, which had been under consideration for some time, was in your opinion a logical and proper step for the company to take. What effect, if any, will this situation have on your audit report for the current year? Remember to complete all parts of the problems.View Full Posting Details