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

question 72

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.

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Definitions:

Indirect Method

A way of calculating cash flows from operating activities by starting with net income and adjusting for non-cash transactions.

Depreciable Asset

An asset subject to depreciation, typically tangible fixed assets excluding land, reflecting its usage, wear, and tear over time.

Patent Amortization

The gradual expense recognition of a patent's cost over its useful life, reflecting the consumption of the patent's economic benefits.

Quality Of Income Ratio

A ratio that measures the proportion of income generated from the core operations of a business.