When an Entity Changes Its Method of Accounting for Income

question 16

Multiple Choice

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor's report. This paragraph should identify the nature of the change and:

• A) Explain why the change is justified under generally accepted accounting principles.
• B) Describe the cumulative effect of the change on the audited financial statements.
• C) State the auditor's explicit concurrence with or opposition to the change.
• D) Refer to the financial statement note that discusses the change in detail.

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Definitions:

Grapevines

Informal and unofficial channels of communication within an organization, often spreading rumors or unverified information.

Incorrect Information

False or inaccurate data or details that can lead to misunderstandings or erroneous outcomes.

Major Barrier

A significant obstacle or hindrance that prevents or impedes progress toward achieving a goal or objective.

Openness

A personality trait characterized by a willingness to experience new ideas, imaginative thought, curiosity, and a broad range of interests.