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

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When there is a significant change in accounting principle, where should the auditor's report refer to the lack of consistency?

The Opinion paragraph.
An emphasis-of-matter paragraph after the Opinion.
The Introductory paragraph.
Management's Responsibility paragraph.

The correct answer is: An emphasis-of-matter paragraph after the Opinion.

When there is a significant change in accounting principle, the auditor's report should include an emphasis-of-matter paragraph after the Opinion paragraph to address the lack of consistency in the financial statements. This paragraph serves to highlight to users of the financial statements that the change in accounting principle may impact their understanding of the financial information presented. Including this reference in an emphasis-of-matter paragraph is appropriate because it allows the auditor to draw attention to the issue without modifying the opinion rendered on the financial statements. By doing this, the auditor ensures that readers are aware of the nature and impact of the change while maintaining clarity in the overall opinion. The other sections of the auditor's report, such as the Opinion paragraph or the Introductory paragraph, do not serve the purpose of signaling a change in accounting principle while maintaining the opinion intact. The Management's Responsibility paragraph typically outlines management's duties regarding the financial statements and does not address consistency issues. Thus, placing the reference in an emphasis-of-matter paragraph after the Opinion is the correct practice.