Management has recorded prepaid insurance as an asset in the previous year. This year, to reduce record-keeping costs, it expenses insurance. If the amount is immaterial to the financial statements,
A) a disclaimer opinion is issued.
B) a qualified opinion is issued.
C) a standard unmodified opinion audit report is issued.
D) no audit report can be issued.

Question

Quizplus · Accepted Answer

If the amount of the prepaid insurance is immaterial to the financial statements, the change in accounting treatment from asset to expense would not have a material effect on the financial statements. Therefore, the auditor can issue a standard unmodified opinion audit report.

Management Has Recorded Prepaid Insurance as an Asset in the Previous