Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards

Auditing P 3-31

Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards. This standard reads, "The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period." Assume that the following list describes changes that have a material effect on a client's financial statement for the current year:
1. Correction of a mathematical error in inventory pricing made in a prior period.
2. A change from prime costing to full absorption costing for inventory valuation.
3. A change from presentation of statements of individual companies to presentation of consolidated statements.
4. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.
5. A change from the completed-contract method to the percentage-of completion method of accounting for long-term construction contracts.
6. A change in the estimated useful life of previously recorded fixed assets based on newly acquired information.
7. A change to including the employer share of Social Security (FICA) taxes as "retirement benefits" on the income statement from including it with "other taxes."
8. A change from FIFO method of inventory pricing to the LIFO method of inventory pricing.

Identify the type of change described in each item above, and state whether any modification is required in the auditor's report as it relates to the second standard of reporting. Organized your answer sheet as shown. For example, a change from the LIFO method of inventory pricing to the FIFO method in inventory pricing would appear as shown.
Assume that each item is material.

Item No. Type of Change Should Auditors report be modified?
Example An accounting change from one GAAP "Yes" to another GAAP


Click here for the solution: Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards

Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000

EX 9-16 Effect of doubtful accounts on net income

Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000, wrote off $70,000 of accounts as uncollectible using the direct write-off method, and reported net income of $450,000.

a. Determine what net income would have been in the second year if the allowance method (using 1½% of net sales) had been used in both the first and second years.

b. Determine what the balance of the allowance for doubtful accounts would have been at the end of the second year if the allowance method had been used in both the first and second years.

Click here for the solution: Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000