A change in reporting entity is an example of an accounting change that affects comparability and requires an explanatory/emphasis-of-matter paragraph in the audit report.

Question

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A change in reporting entity, such as a company changing its legal structure or reporting segment, can significantly impact the comparability of financial statements between years. As a result, the audit report will typically include an explanatory or emphasis-of-matter paragraph to disclose and explain the change to users of the financial statements.

A Change in Reporting Entity Is an Example of an Accounting