A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor's report on the financial statements of the year of the change should include
A) no reference to consistency.
B) a reference to a prior period adjustment in the opinion paragraph.
C) an explanatory paragraph that justifies the change and explains the impact of the change on reported net income.
D) an explanatory paragraph explaining the change.

Question

Quizplus · Accepted Answer

The auditor's report should include an explanatory paragraph explaining the change in inventory valuation method. This paragraph should also explain the impact of the change on reported net income. A reference to a prior period adjustment may not be necessary if the change was made in the current year and did not require restatement of prior year financial statements. The auditor's report should still reference consistency, but the reference should indicate that the change was made and explained in the explanatory paragraph. Therefore, option D is the best choice.

A Company Has Changed Its Method of Inventory Valuation from an Unacceptable