Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

If a company changes financial policies without material effect, what should be done in the financial statements?

1. Include a note detailing the change.

2. Modify the opinion paragraph.

3. Report the change as a significant event.

4. Omit any references to the change.

The correct answer is: Include a note detailing the change.

When a company changes financial policies that do not have a material effect on the financial statements, including a note detailing the change is the appropriate action. This practice aligns with the principles of transparency and disclosure in financial reporting. Even though the change may not materially affect the financial statements, it still provides valuable context for users, such as investors or analysts, who rely on the financial statements to assess the company's performance and risk. By including a note, the company ensures that stakeholders understand the nature of the change and any potential implications for future financial reporting or trends, preserving the integrity and clarity of financial communication. The other options are not suitable in this context. Modifying the opinion paragraph is unnecessary and wouldn't be relevant unless the change materially impacted the financial statements. Reporting the change as a significant event would typically apply to more critical changes that do affect financial reporting significantly. Omitting any references to the change could lead to confusion or misinterpretation among users of the financial statements, as they may not fully understand the context of the company’s financial situation. Thus, including a note is the most prudent and beneficial approach.