"As described in Note 5 to the financial statements,General Express changed its statistical method of computing product warranty expense for the year ended December 31,2012" is an illustration of a
A) Consistency change requiring a qualified opinion.
B) Scope limitation.
C) Departure from generally accepted accounting principles
D) Report with a consistency modification.

Question

Quizplus · Accepted Answer

This statement indicates that General Express made a change in its accounting policy related to the computation of product warranty expense. According to Generally Accepted Accounting Principles (GAAP), such changes in accounting policies require retrospective application to prior periods' financial statements. Since this change was properly disclosed and applied retrospectively, it does not result in a departure from GAAP or require a scope limitation. Instead, it is a consistent change that is appropriately disclosed and requires a consistency modification in the auditor's report.

"As Described in Note 5 to the Financial Statements,General Express