Changes in an Entity's Accounting Choices Either Affect "Consistency" in the Application

question 40

Essay

Changes in an entity's accounting choices either affect "consistency" in the application of GAAP or they do not. For each item listed below, state whether the item affects consistency and identify the effect the change will have on the audit report.
1. Change in accounting estimate.
2. Correction of an error in principle.
3. Change in reporting entity.
4. Correction of an error that does not involve an accounting principle.
5. Change in accounting principle.
6. Change in classification and reclassification.
7. Change expected to have a material future effect.

---

Definitions:

Profit Sharing

A company policy wherein employees receive a share of the profits of the business, which serves as a motivation and reward for their performance.

Cartel Output

The total production level agreed upon by members of a cartel, aimed at maximizing their collective profits by controlling supply.

Demand Schedule

A table or graph displaying the quantity of a good or service that consumers are willing and able to purchase at various price points within a given time frame.

Collude

To agree secretly among competitors to fix prices, bids, or terms of sale in order to manipulate a market.