For which of the following events would an auditor issue a report that omits any reference to consistency?
a. Management's lack of reasonable justification for a change in accounting principle.
b. A change from an accounting principle that is not generally accepted to one that is generally accepted.
c. A change in the method of accounting for inventories.
d. A change in the useful life used to calculate the provision for depreciation expense.
Explanation
Choice “d” is correct. A change in accounting estimate (such as a change in the useful life of a depreciable asset) is accounted for prospectively and does not affect the comparability of financial statements between periods. Since the auditor's unmodified opinion implies that consistency exists, no modification to the report is necessary.
Choices “c”, “b”, and “a” are incorrect. Assuming the effect is material, a change in accounting principle results in the addition of an emphasis-of-matter paragraph (following the opinion paragraph) in the auditor's report. An emphasis-of-matter paragraph is required even if the previous accounting principle was not GAAP and even if management lacks reasonable justification for the change. (Note: A lack of reasonable justification for the change may also give rise to a report modification based on material misstatement of the financial statements).
I am hving a hard time understanding this concept. Becker A1-29 it says ” a change in accounting estimate that is inseparable from a change in accounting principle shld be described in an emphasis of matter para (e.g. a change in depr method)”
So if there is a change in depr method we use emphasis of matter but if its useful life change its a prospective change and no need to mention?
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