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

What should be included in an auditor's report when there is a lack of consistency due to accounting principle changes?

1. Emphasis-of-matter paragraph following the opinion paragraph.

2. Only the opinion paragraph.

3. An explanation of the accounting principle change.

4. No mention in the report.

The correct answer is: Emphasis-of-matter paragraph following the opinion paragraph.

When there is a lack of consistency in financial statements due to changes in accounting principles, it is important for the auditor's report to address this issue. The inclusion of an emphasis-of-matter paragraph after the opinion paragraph is necessary to highlight the change in accounting principles and its impact on the financial statements. This paragraph serves to inform users of the report about the significance of the consistency issue, signaling that while the auditor has provided an unmodified opinion, the financial statements might not be comparable over time due to the accounting principle changes. The emphasis-of-matter paragraph is crucial as it provides additional context and ensures transparency. It directs the reader’s attention to the relevant notes in the financial statements where details of the accounting changes will be explained, enabling users to make informed decisions based on the financial information presented. This approach upholds the auditor's responsibility to communicate effectively about significant matters that could affect the interpretation of the financial statements. The other choices either lack the necessary detail to inform users about the impacts of the changes or do not fulfill the auditor's obligation to provide clear communication concerning significant aspects of the audit.