If Management Fails to Provide Adequate Justification for a Change

question 4

Multiple Choice

If management fails to provide adequate justification for a change from one generally accepted accounting principle to another, the auditors should

• A)Modify the Opinion Section and Basis for Opinion Section of the report for lack of conformity with generally accepted accounting principles.
• B)disclaim an opinion on the entity's financial statements because of uncertainty.
• C)disclose the matter in an emphasis-of-matter paragraph but not modify the Opinion Section of the report.
• D)Not modify the report because both principles are generally accepted accounting principles.

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Definitions:

Break-Even

The juncture where the overall expenditures match the total income, resulting in neither a profit nor a loss.

Economic Profits

Profits exceeding the opportunity costs of all resources used, including both explicit and implicit costs.

Accounting Profits

The difference between total revenues and explicit costs, representing the net income a company reports on its financial statements.

Most Efficient Output

The level of production at which a firm operates with the lowest average total cost, achieving optimal efficiency.