Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion?a. Entity changed its estimated allowance for uncollectible accounts receivable.b. Entity corrected a prior mistake in accounting for interest capitalization. c. Entity sold one of its subsidiaries and consolidated six subsidiaries this year comparedto seven last year.d. Entity changed its inventory costing method from FIFO to LIFO

Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion?a. Entity changed its estimated allowance for uncollectible accounts receivable.b. Entity corrected a prior mistake in accounting for interest capitalization. c. Entity sold one of its subsidiaries and consolidated six subsidiaries this year comparedto seven last year.d. Entity changed its inventory costing method from FIFO to LIFO

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 2E

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Which of the following statements is not true concerning interim financial reporting and inventories? A company that uses LIFO and encounters a temporary partial a) liquidation of its base period inventory must include the effects of the liquidation in the period in which it occurred. b) Provisions for write-downs to market should generally be the same for both the annual and interim reporting. A company that utilizes a periodic inventory system and uses c) estimated gross profit rates to determine costs of goods sold during interim periods should disclose any significant adjustments that result from reconciliation with the annual physical inventory. d) The same inventory pricing method used for annual reporting should generally be used for interim reporting.
9. An entity uses periodic inventory system and neglected to record a purchase of merchandise on account at year end. This merchandise was omitted from the year end physical count. How would these errors affect the entity's Assets, Liabilities, Shareholders' Equity at year end and Net Income for the year?* Asset - UNDERSTATE, Liabilities - UNDERSTATE, Shareholders' Equity - NO EFFECT, Net Income - NO EFFECT Asset - UNDERSTATE, Liabilities - NO EFFECT, Shareholders' Equity - UNDERSTATE, Net Income - UNDERSTATE Asset - NO EFFECT, Liabilities - OVERSTATE, Shareholders' Equity - UNDERSTATE, Net Income - UNDERSTATE Asset - NO EFFECT, Liabilities - UNDERSTATE, Shareholders' Equity - OVERSTATE, Net Income - OVERSTATE
2. Gabriela Company’s auditor discovered that the company inadvertently overstated ending Inventory for the prior year. If the error is not corrected, what effect will the error have on the following financial statement items for both the prior year and the current year? Indicate in each box a “+" (plus) if the item is overstated, a “-“ (minus) if the item is understated, and a “N/A" if there is no effect on the item. Prior Year Current Year Effect on Income Statement Goods Available for Sale Cost of Goods Sold Gross Profit Net Income Effect on Balance Sheet Inventory on 12/31 Retained Earnings
Discuss whether the changes described in each of the cases below require recognition in the CPA’s audit report as to consistency. (Assume that the amounts are material.) a. The company changed its inventory method to FIFO from weighted-average, which had been used in prior years. b. The company disposed of one of the two subsidiaries that had been included in its consolidated statements for prior years. c. The estimated remaining useful life of plant property was reduced because of obsolescence.
A multinational corporation has changed its method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements. The auditor does not agree with the appropriateness of the change. The auditor would issue a(n): * Unqualified opinion with an explanatory paragraph O Unqualified opinion Disclaimer of opinion O Qualified opinion
The errors below were noted after the books of CalMart Corporation were audited at the close of 2021 Indicate the effects of each of the following errors with an O for Overstatement, U for understatement and N for no effect in the appropriate column. 2020 2021 Retained before closing Eamings Retained Earnings after closing Net Income Asset Liability Retained before closing Earnings Retained Eamings after closing Net Income Asset Liability Understatement of 2020 ending inventory worth P2,000. Failure to record accrued interest on notes payable at the end of 2020.Notes payable, principal amount P10,000; interest rate, 10%; acquired March 31,2020. Failure to recognize unearned rent at the end of 2020 worth P1,000. Goods received in December 2020 recorded purchases when paid in 2021. The goods were excluded from the 2020 ending inventory. were as
necessary adjustments. However, the directors refuse to amend the financial statements to Simon and Co has been engaged to perform an audit for High Trendy Sdn Bhd for that the difference is due to an adjustment to inventory that had not been reflected in the draft financial statements. After reviewing the inventory adjustment, you have made the the year ended 31 December 20xx. While finalizing the audit, you noted that the net profit is MYR 350,000 in the directors' report compared with MYR 500,000 in the Statement CASE 15 Jon Comprehensive Income. Based on your discussion with the management, you find out e the difference is due to an adjustment to inventory that had not been reflected in the ocessary adjustments. However, the directors refuse to amend the financial statements to reflect the adjustment. Required: Discuss the type of audit opinion and draft an auditor's report to accompany the above situation.
The errors below were noted after the books of CalMart Corporation were audited at the close of 2021 Indicate the effects of each of the following errors with an O for overstatement, U for understatement and N for no effect in the appropriate column. 2020 2021 Retaine Retained Retained d Earnings,befo Re, Earnings, befo Earning s, after closing Net Net Incom re after Incom re Asset Liability closing closing Asset Liability closing e Failure to record purchases of merchandise on account of P2,000 at the end of 2020. Sale of merchandise on account on December 30,2020 amounting to P2,000 was not recorded until the customer paid his account on january 2021. Depreciation expense on equipment in 2020 was overstated by P1,000. Paid one year insurance premium of P2,000 effective April 1,2020. The entire amount was debited to expense account and no adjustment was made at the end of 2020. On December 31,2020, the Company acquired a parcel of land and a building at a total cost of P5,000,000. The…
True or False Prior years' financial statements are not restated when the prospective approach is used. A change to the FIFO method of valuing inventory requires use of the retrospective method. Error corrections require restatement of all the affected prior year financial statements reported in comparative financial statements. No changes in accounting principle are reported using the retrospective approach. All changes in estimate are accounted for retrospectively.
" In our opinion, the financial statements give a true and fair view of the state of the Company's affairs and have been properly prepared in accordance with the Hong Kong Companies Ordinance. "Q:The auditor found that a client has switched the inventory valuation method from weighted average method used last year to First-in-first-out method this year, and the effect is material to this year's financial statements. (i) What should the auditor consider when deciding on the suitable opinion?(ii) Suggest the possible opinions and explain the situations that give rise to each opinion.
Parsons Inc. has proposed a change from one inventory accounting method to another for financial reporting purposes. The auditor indicates that a change would be permitted only if it is to a preferable method. What difficulties develop in assessing preferability?
Generally accepted accounting principles should be applied consistently from period to period. However, changeswithin a company, as well as changes in the external economic environment, may force a company to change anaccounting method. The specific reporting requirements when a company changes from one generally acceptedinventory method to another depend on the methods involved.Required:Explain the accounting treatment for a change in inventory method (a) not involving LIFO, (b) from the LIFOmethod, and (c) to the LIFO method. Explain the logic underlying those treatments. Also, describe how disclosurerequirements are designed to address the departure from consistency and comparability of changes in accountingprinciple