Comparative Financial Statements Include the Financial Statements of a Prior

question 15

Multiple Choice

Comparative financial statements include the financial statements of a prior period that were examined by a predecessor auditor whose report is not presented. If the predecessor auditor's report was qualified, the successor auditor must:

• A)obtain written approval from the predecessor auditor to include the prior year's financial statements.
• B)issue a standard comparative audit report indicating the division of responsibility.
• C)express an opinion on the current year statements alone and make no reference to the prior year statements.
• D)disclose the nature of and reasons for any qualification in the predecessor auditor's opinion.

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Definitions:

Variable Costing

An accounting method that only allocates variable costs to production, treating fixed costs as period costs that are charged to expense as they are incurred.

Fixed Overhead Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance, and must be paid regardless of the business activity level.

Product Costs

Costs that are directly associated with the production of goods or services.

Margin of Safety

Margin of Safety represents the difference between actual sales and break-even sales, indicating the amount by which sales can decrease before a business incurs a loss.