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When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an emphasis-of-matter paragraph added to the auditor’s report. This paragraph should describe the change and
Refer to the financial statement note that discusses the change in detail.
When a change in accounting principle has a material effect on comparability, the auditor should add an emphasis-of-matter paragraph after the opinion paragraph that (1) uses the heading “Emphasis of Matter,” (2) describes the change in principle, (3) refers to the entity’s disclosure, and (4) indicates that the opinion is not modified with regard to the matter emphasized.
Before reissuing the prior year’s auditor’s report on the financial statements of a former client, the predecessor auditor should obtain a letter of representations from the
Before reissuing the report, the predecessor auditor should consider whether the report is still appropriate. The predecessor auditor should (1) read the current period financial statements, (2) compare the prior period statements reported on with those to be presented comparatively, and (3) obtain written representations from the successor auditor and management (AU-C 560).
Is a other-matter paragraph is included in the auditor’s report when the client has materially restated the prior year’s comparative financial statements.
No --- An other-matter paragraph draws attention to a matter not required to be presented or disclosed in the financial statements that is relevant to users’ understanding of the auditor’s audit, responsibilities, or report. A correction of a material misstatement in previously issued financial statements requires the auditor to include an emphasis-of-matter paragraph. This matter is appropriately presented or disclosed in the financial statements and is fundamental to users’ understanding.
When the auditor concurs with a change in accounting principle that materially affects the comparability of the comparative financial statements, the auditor should
Concur explicitly with the change
express a qualified opinion
A material change in accounting principle raises a consistency issue. Thus, a report with an emphasis-of-matter paragraph is required if the auditor’s evaluation concludes that certain criteria have been met: (1) the new principle and the method of accounting for it are in accordance with the applicable framework, (2) related disclosures are appropriate, and (3) the entity has justified that the principle is preferable. The opinion is modified for a material change in principle only if the criteria are not met. Furthermore, the auditor’s concurrence is implied by the inclusion of an emphasis-of-matter paragraph. This paragraph is included only if the opinion is not modified with regard to the matter.
When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible for
Updating the report on the previous financial statements regardless of the opinion previously expressed.
A continuing auditor should update the report on the individual statements of one or more prior periods presented on a comparative basis. An updated report considers information of which the continuing auditor is aware as a result of the current audit. Furthermore, the updated report is issued in conjunction with the report on the current statements. For example, if the opinion was modified because of a material misstatement, and management revises the statements, the updated report expresses an unmodified opinion.