Question

For each of these items, state (1) whether the item affects the consistency in application of GAAP and (2) how it can impact the audit report. 1. Change in accounting estimate.

2. Correction of an error in principle.

3. Change in reporting entity.

4. Correction of an error that does not involve an accounting principle.

5. Change in accounting principle.

6. Change in classification and reclassification.

Answer 1

Here we have to write two view about the given items as follows :-

GAAP :- Generally accepted accounting principles

1. Change in account

A. It does not affects the consistency in application of GAAP because changes in accounting estimate is common in every bussiness. So we can't stop application of GAAP in our accounting procedures.

B. It impact audit thin whether the way the auditor has to verify the reason for change in estimate.

2. Correction of an error in principle

A. No it does not affect application of the GAAP. The correction of error improve the application of GAAP but never decrease the value of GAAP in accounting records.

B. It impact the audit that the auditor has to verify the error and correction of error.

3. Change in reporting entity.

A. It does not effect the application of GAAP due to reporting to any entity involves in application of GAAP so change in that entity will not get changes in reporting . Here there may be changed in entity but no changes in reporting requirements and application of GAAP

B. Auditor has to verify the reason for change in reporting entity example is ther any mergers or acquisitions or any other agreements between old and new reporting entity.

4. Correction of an error that does not involve in accounting principle

A. It does not affects the application of GAAP

B. Its impact in audit is auditor has to check the nature of error and how the error is corrected.

5. Change in accounting principle

A. It compulsorily affect the application of GAAP. GAAP itself is the principle and any changes in that principle will get effect to the application of GAAP

B. It effects the audit that auditor has to check the reason for the changes in accounting principles. what are the results got by the organisation after the change of accounting principles whether they are positive results are negative results.

6. Changing classification and reclassification

A. It affect the application of GAAP. GAAP describe the accounting and reporting patterns and components of financial statements if there is any changes in those component classification or reclassification then it affect the application of GAAP.

B. it affects the audit in such a way that alter has to check whether the classification and reclassification is adopted by the organisation and what are the difference in reporting financial statement before adopting this clasification, reclassification and after adopting the classification, classifications.

These are all the aspects that these items affect the application of GAAP and the impacts in audit.

These are all the information required to solve the above given question.

I hope, all the above given details and explanations are useful and helpful to you.

Thank you.