(TCO 2) An entity has changed its depreciation method for production equipment f
ID: 2599340 • Letter: #
Question
(TCO 2) An entity has changed its depreciation method for production equipment from a straight line method to units of production method based on hours of utilization. The entity’s auditor concurs with the change although it has a material effect on the comparability of the entity’s financial statements.
From the following opinion types, select and write the opinion type or types that can be used by the auditor. Up to two opinion types can be selected.
In addition, select and write the appropriate report modification options that are required to be made by the auditor. You can select as many options as apply. (Becker, Adopted)
Opinion Options
Unmodified
Except for qualified
Adverse
Disclaimer
Report Modification Options
Issue the independent auditor’s report
without modification
Modify the introductory paragraph
Modify the auditor’s responsibility paragraph
Omit the auditor’s responsibility paragraph
Modify the opinion paragraph
Add an emphasis-of-matter paragraph
preceding the opinion paragraph
Add an emphasis-of-matter paragraph
following the opinion paragraph
Explanation / Answer
Answer
Explanation - an entity has changed method of depreciation. Such change is not incomsistent with the accounting principles but to comply with the accounting principles more appropriately and fairly.
Such change has material effect on the comparability of the financial statements. Such material effect does not require qualification as long as such change is adhered to accounting principles
Conclusion - In this case, looking at the compliance of accounting priniciples, auditor agrees with the such change in accounting principles.
In such cash Auditor should issue 'unqualified independent audit report' having 'unmodified opinion'
Since change in accounting principles has shown the lack of consistency principles, hence an explanatory paragraph needs to be given after opinion paragraph with no modification in other three standard paragraph like auditor reponsibility statement, Management responsibility statements and report on other regulatory and legal matters.
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