This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all.
Assume:
* The auditor is independent.
* The auditor previously expressed an unqualified opinion on the prior year's financial statements.
* Only single-year (not comparative) statements are presented for the current year.
* The conditions for an unqualified opinion exist unless contradicted in the factual situations.
* The conditions stated in the factual situations are material.
* No report modifications are to be made except in response to the factual situation.
Item to Be Answered
An entity changes its depreciation method for production equipment from the straight-line to a units-of production method based on hours of utilization. The auditor concurs with the change although it has a material effect on the comparability of the entity's financial statements.
List B
Report Modifications
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Correct Answer:
B
Choice 'B' is the correct modification. Such changes should be described in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs.
