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The entity changed from one generally accepted accounting principle to another generally accepted accounting principle.2.A shared report involving the use of other auditors.3-10When another CPA has performed part of the audit, the primary auditor issues one of the following types of reports based on the circumstances.1.No reference is made to the other auditor. This will occur if the other auditor audited an immaterial portion of the statement, the other auditor is known or closely supervised, or if the principal auditor has thoroughly reviewed the other auditor's work.2.Issue a shared opinion in which reference is made to the other auditor. This type of report is issued when it is impractical to review the work of the other auditor or when a portion of the financial statements audited by the other CPA is material inrelation to the total.3.The report may be qualified if the principal auditor is not willing to assume any responsibility for the work of the other auditor. A disclaimer may be issued if the segment audited by the other CPA is highly material.3-11Even though the prior year statements have been restated to enhance comparability, a separate explanatory paragraph is required to explain the change in generally accepted accounting principles in the first year in which the change took place.3-12Changes that affect the consistency of the financial statements may involve any of the following:a.Change in accounting principleb.Change in reporting entityc.Corrections of errors involving accounting principles.An example of a change that affects consistency would be a change in the method of computing depreciation from straight line to an accelerated method. A separate explanatory paragraph is required if the amounts are material.Comparability refers to items such as changes in estimates, presentation, and events rather than changes in accounting principles. For example, a change in the estimated life of a depreciable asset will affect the comparability of the statements. In that case, no explanatory paragraph for lack of consistency is needed, but the information may require disclosure in the statements.10
3-13The three conditions requiring a departure from an unqualified opinion are:1.The scope of the audit has been restricted. One example is when the client will not permit the auditor to confirm material receivables. Another example is when the engagement is not agreed upon until after the client's year-end when it may be impossible to physically observe inventories.2.The financial statements have not been prepared in accordance with generally accepted accounting principles. An example is when the client insists upon usingreplacement costs for fixed assets.3.The auditor is not independent. An example is when the auditor owns stock in the client's business.