SOLUTIONS TO BRIEF EXERCISES 2

SOLUTIONS TO BRIEF EXERCISES 2 - SOLUTIONS TO BRIEF...

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SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 2-1 (a) If the company changed its method for inventory valuation, the consis-tency, and therefore the comparability, of the financial statements have been affected by a change in the method of applying the accounting principles employed. The change would require comment in the auditor’s report in an explanatory paragraph. (b) If the company disposed of one of its two subsidiaries that had been included in its consolidated statements for prior years, no comment as to consistency needs to be made in the CPA’s audit report. The comparability of the financial statements has been affected by a business transaction, but there has been no change in any accounting principle employed or in the method of its application. (The transaction would probably require informative disclosure in the financial statements.) (c) If the company reduced the estimated remaining useful life of plant property because of obsolescence, the comparability of the financial statements has been affected. The change is not a matter of consistency; it is a change in accounting estimate required by altered conditions and involves no change in accounting principles employed or in their method of application. The change would probably be disclosed by a note
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This note was uploaded on 04/15/2011 for the course ACCT 305 taught by Professor Allen during the Spring '11 term at Wilmington DE.

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SOLUTIONS TO BRIEF EXERCISES 2 - SOLUTIONS TO BRIEF...

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