Reference no: EM13886733

Various types of accounting changes can affect audit reporting. AICPA auditing standards indicate that an emphasis of matter explanatory paragraph should be included when accounting principles have not been consistently applied in the current period in relation to the preceding period. Assume that the following list describes changes that have a material effect on a client's financial statements for the current year:

l. Correction of a mathematical error in inventory pricing made in a prior period.
2. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.
3. A change from the completed contract method to the percentage of completion method of accounting for long term construction contracts.
4. A change in the estimated useful life of previously recorded fixed assets based on newly acquired information
5. A change to including the employer share of Social Security (FICA) taxes as retirement benefits on the income statement from including it with other taxes.
6. A change from prime posting to full absorption costing for inventory valuation.
7. A change from presentation of statements of individual companies to presentation of consolidated statements.
8. A change from the FIFO method of inventory pricing to the LIFO method of inventory pricing.

Required: Identify the type of change described in each item above and state whether any modification is required in the auditor's report as it relates to consistency. Organize your answer sheet as shown. For example, a change from the LIFO method of inventory pricing to the FIFO method of inventory pricing would appear as shown.Assume that each item ismaterial.

Various types of "accounting changes" can affect audit reporting. AICPA