The Rotter Company Changed Accounting Principles in 20X4 from Those

question 26

Multiple Choice

The Rotter Company changed accounting principles in 20X4 from those followed in 20X3. The auditor believes that the new principles are not in conformity with GAAP, and therefore that the 20X4 financial statements are misleading due to pervasive misstatements. The change (including its dollar effect) has been described in the notes to the 20X4 statements, which are being presented by themselves. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should:

• A) Express an adverse opinion with the basis for a modification paragraph disclosing the reason (the accounting change) for the opinion.
• B) Express an unmodified opinion with an emphasis-of-matter paragraph and disclose the accounting change from 20X3 and its effect on the financial statements.
• C) Disclaim an opinion and explain all of the reasons therefore.
• D) Express an adverse opinion regarding the 20X4 financial statements, without a basis for a modification paragraph since the reason therefore since that reason will be included in the notes to the statements.

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Definitions:

Demand Schedule

A table that shows the quantity of a good or service that consumers are willing to buy at each price point.

Marginal Cost

The incremental expense incurred from the production of an extra unit of a good or service.

Maximum Profit

The highest possible financial gain achievable by a firm from its operations, over a certain period of time.

Demand Schedule

A chart displaying the amount of a product or service that buyers are prepared and capable of buying at different price levels.