[Anonymous]

Hello,

I’m getting confused with what Becker is telling me and a question that was used in 2013 Audit test. Is regarding change in accounting principle and if we need to use an emphasis-of-matter paragraph. I always thought we had to use an emphasis matter paragraph when there was a change in accounting principle (Becker A1-29). See below question from 2013 test and answer. But Becker is telling me you have to use an emphasis paragraph. Is it because the change is not material, that is why we don’t need one? Thanks in advance for your help!!

When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should

a. Not refer to the change in the auditor’s report.

b. Refer to the note in the financial statements that discusses

the change.

c. Refer to the change in an emphasis-of-matter paragraph.

d. Explicitly state whether the change conforms with

GAAP.

The requirement is to identify the effect on an audit report of a change in accounting principles with an immaterial effect on the financial statements. Answer (a) is correct because an accounting change with an immaterial effect need not be referred to in the audit report. Answer (b) is incorrect because the note is not referred to in the audit report. Answer (c) is incorrect because no emphasis-of matter paragraph is added to the audit report. Answer (d) is incorrect because the change is not referred to.

[Anonymous]

First off, those are horrible non-explanations for why b, c and d are wrong. Shame on you, lazy Becker.

Here's what my accounting textbook says:

“If a change in accounting principle or in the method of its application materially affects the comparability and the consistency of the financial statements, and the auditor concurs with the change, the auditor should discuss the change in an explanatory or emphasis-of-matter paragraph to highlight the lack of consistency. Auditing standards refer to the following accounting changes as affecting both comparability and consistency and requiring an explanatory or emphasis-of-matter- paragraph.”

1. Change in accounting principle……”

This looks to be a bad question. If the question had said “but the effect of the change on the comparability OR CONSISTENCY of the financial statements is not material”, Answer (A) would be more understandably correct. But since it doesn't speak of the consistency in the question one way or the other, I think a logical person would assume that an emphasis-of-matter paragraph is needed, since it (my textbook at least) seems to imply that a change in principle, unless stated otherwise, affects comparability and consistency.

[Anonymous]

First off, those are horrible non-explanations for why b, c and d are wrong. Shame on you, lazy Becker.

Here's what my accounting textbook says:

“If a change in accounting principle or in the method of its application materially affects the comparability and the consistency of the financial statements, and the auditor concurs with the change, the auditor should discuss the change in an explanatory or emphasis-of-matter paragraph to highlight the lack of consistency. Auditing standards refer to the following accounting changes as affecting both comparability and consistency and requiring an explanatory or emphasis-of-matter- paragraph.”

1. Change in accounting principle……”

This looks to be a bad question. If the question had said “but the effect of the change on the comparability OR CONSISTENCY of the financial statements is not material”, Answer (A) would be more understandably correct. But since it doesn't speak of the consistency in the question one way or the other, I think a logical person would assume that an emphasis-of-matter paragraph is needed, since it (my textbook at least) seems to imply that a change in principle, unless stated otherwise, affects comparability and consistency.

[Anonymous]

Hey Brian, thanks for taking time to look at this question.

When reading AUC 708.08 it states:

.08 If the auditor concludes that the criteria in paragraph .07 have been met, and the change in accounting principle has a material effect on the financial statements, the auditor should include an emphasis-of-matter paragraph in the auditor's report that describes the change in accounting principle and provides a reference to the entity's disclosure. If the criteria in paragraph .07 are not met, the auditor should evaluate whether the accounting change results in a material misstatement and whether the auditor should modify the opinion accordingly. Ref: par. .A7–.A9)

So it looks like if its material it should have an emphasis of matter paragraph (which we both knew that)..still trying to figure out if its not material what happens.. Figure I keep you posted since you will be taking the audit soon.

[Anonymous]

Hey Brian, thanks for taking time to look at this question.

When reading AUC 708.08 it states:

.08 If the auditor concludes that the criteria in paragraph .07 have been met, and the change in accounting principle has a material effect on the financial statements, the auditor should include an emphasis-of-matter paragraph in the auditor's report that describes the change in accounting principle and provides a reference to the entity's disclosure. If the criteria in paragraph .07 are not met, the auditor should evaluate whether the accounting change results in a material misstatement and whether the auditor should modify the opinion accordingly. Ref: par. .A7–.A9)

So it looks like if its material it should have an emphasis of matter paragraph (which we both knew that)..still trying to figure out if its not material what happens.. Figure I keep you posted since you will be taking the audit soon.

[Anonymous]

Glad to join the discussion. We're in this together!

I have found that taking a position on this material, even if that position is “my review course worded this question terribly” or “this (unnamed) test bank is buggier than a grocery store parking lot”, really engages me. Gets me thinking about the material, analyzing why an answer is what it is or how a question or concept could have been better worded. Sure beats pure memorization.

[Anonymous]

Glad to join the discussion. We're in this together!

I have found that taking a position on this material, even if that position is “my review course worded this question terribly” or “this (unnamed) test bank is buggier than a grocery store parking lot”, really engages me. Gets me thinking about the material, analyzing why an answer is what it is or how a question or concept could have been better worded. Sure beats pure memorization.

[Quinacridone]

The question is hinged on materiality vs. immateriality.

Since the guidance instructs only that we would have to add an emphasis of matter paragraph when the change is material, then we do NOT amend the report for this in anyway when it is not material.

GAAS is only going to tell you what you have to do (or should, or may), so if there is not a specific instruction telling you what to do when the change is immaterial, then you don't have to do anything in that instance (i.e. you do not have to amend your report in anyway).

REG - Nov 4, 2013: 88
FAR - Feb 27, 2014: 86
AUD - April 5, 2014: 91
BEC - May 6, 2014: 83

Florida CPA 24 July 2014
(Done in seven months - thank you Jesus!!)

[Quinacridone]

The question is hinged on materiality vs. immateriality.

Since the guidance instructs only that we would have to add an emphasis of matter paragraph when the change is material, then we do NOT amend the report for this in anyway when it is not material.

GAAS is only going to tell you what you have to do (or should, or may), so if there is not a specific instruction telling you what to do when the change is immaterial, then you don't have to do anything in that instance (i.e. you do not have to amend your report in anyway).

REG - Nov 4, 2013: 88
FAR - Feb 27, 2014: 86
AUD - April 5, 2014: 91
BEC - May 6, 2014: 83

Florida CPA 24 July 2014
(Done in seven months - thank you Jesus!!)

[Author]

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