[Biff-1955-Tannen]

Can somebody explain why if properly disclosed, a change in accounting principles will modify a report, while properly disclosed inconsistencies in accounting principles will not?

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[win2bet]

its b/c a change in accounting principal is a departure from GAAP, which results in a qualified opinion.

while inconstancies if immaterial, don't require modification of the opinion

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[Biff-1955-Tannen]

Are you sure it would demand a qualified opinion? I thought that if the client can justify the change, or the change is required by a new pronouncement it wouldn't be a GAAP departure. Your response did get me to think about it a little more though, and wouldn't the modification to the report just be an emphasis of matter paragraph to bring attention to the financials consistency? (assuming that it is justifiable or required). If it wasn't required or justifiable then it would be a qualified.

The inconsistencies not “requiring” a modification because of the possibility of it not being material does make sense though.

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[win2bet]

I think a change in principle means for example: that year 1 follows GAAP, year 2 follows IFRS. there is no comparability there. understand?

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[Biff-1955-Tannen]

I think a change in principle is more of like changing inventory valuation methods… anybody care to provide insight as to our views?

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[kimj356]

To me a change in principle is like Biff stated, a change in an inventory method or etc.

Also I think if the change is justifiable, then it would only require an emphasis of matter paragraph as opposed to a change in opinion.

Now an unjustified would be a departure from GAAP and would cause a change in opinion.

My thoughts, could be wrong.

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[FAR_WARS]

Consistency is implied in the audit report. Therefore a change in principle (GAAP>>>GAAP) requires an Emphasis of Matter paragraph.

Where did you read that a properly disclosed a change in accounting principles will modify a report?

Could it be that they consider an emphasis of matter paragraph to be modifying the report, but not the opinion?

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[Biff-1955-Tannen]

Question #1173 for Ninja MCQ AUD. I think they are saying that the emphasis of matter paragraph is a “modification” of the report, and not necessarily the opinion.

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[win2bet]

Sorry I was wrong: here is the correct info

“Inconsistency in Application of GAAP (AU-C 708 ). In the United States, inconsistency in application of GAAP (a
change in accounting principles) that has a material effect on the comparability of a company’s financial state ments
ordinarily results in a report with an unmodified opinion followed by an emphasis-of-matter para graph. This holds
for both public and nonpublic companies.

The general rule under both GAAS and PCAOB Standards is that it is an inconsistency in application of accounting
principles that results in the addition of an emphasis-of-matter paragraph, while changes in accounting
estimates and minor reclassifications of accounts from one year to the next do not”

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[Biff-1955-Tannen]

So yea it looks like they are saying an emphasis of matter paragraph is the “modification”.
And I think you were right about why “inconsistencies” may not REQUIRE a modification, due to the fact that it may not be material.

And just for clarity, I am interpreting “inconsistencies” that may not require a modification as a immaterial departure from GAAP, and not a change in accounting principles. I really wish they would clarify a little more if they are referring to a change in accounting principle or a GAAP departure…

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[FIFOisbetterthanLIFO]

The key is that the inconsistencies year to year may still represent GAAP financials. The inconsistencies however do not represent comparable statements so the reader needs to be notified of this difference.

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