"A change in accounting principle results from adoption of a generally accepted accounting principle different from the one used previously for reporting purposes. Accounting Changes Affecting Consistency Change in Accounting Principle. Other factors affecting comparability in financial statements may require disclosure, but they would not ordinarily be commented upon in the independent auditor's report. 20, means a change in (1) an accounting principle, (2) an accounting estimate, or (3) the reporting entity (which is a special type of change in accounting principle).05Ĭhanges in accounting principle having a material effect on the financial statements require recognition in the independent auditor's report through the addition of an explanatory paragraph (following the opinion paragraph). Accounting change, as defined in APB Opinion No. 04Ī comparison of the financial statements of an entity between years may be affected by ( a) accounting changes, ( b) an error in previously issued financial statements, ( c) changes in classification, and ( d) events or transactions substantially different from those accounted for in previously issued statements. Although lack of consistency may cause lack of comparability, other factors unrelated to consistency may also cause lack of comparability. Proper application of the consistency standard by the independent auditor requires an understanding of the relationship of consistency to comparability. In these cases, the auditor would not refer to consistency in his report.03 The auditor's standard report implies that the auditor is satisfied that the comparability of financial statements between periods has not been materially affected by changes in accounting principles and that such principles have been consistently applied between or among periods because either ( a) no change in accounting principles has occurred, or ( b) there has been a change in accounting principles or in the method of their application, but the effect of the change on the comparability of the financial statements is not material. fn 1 It is also implicit in the objective that such principles have been consistently observed within each period. The objective of the consistency standard is to ensure that if comparability of financial statements between periods has been materially affected by changes in accounting principles, there will be appropriate reporting by the independent auditor regarding such changes. The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.02 The second standard of reporting (referred to herein as the consistency standard) is: Issue date, unless otherwise indicated: November, 1972.01 See section 9420 for interpretations of this section. Small Business and Broker-Dealer Forums.PCAOB International Institute on Audit Regulation.Conference on Auditing and Capital Markets.
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Information for Auditors of Broker-Dealers.The International Forum of Independent Audit Regulators and Other International Organizations.
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Board Determinations Under the Holding Foreign Companies Accountable Act.PCAOB Cooperative Arrangements with Non-U.S.Updated PCAOB Staff Considerations on Recommending the Identification of Issuers and/or Broker-Dealers in Settled Enforcement Orders.Inspections-Related Board Reports and Statements.Implementation Resources for PCAOB Standards and Rules.Standards and Emerging Issues Advisory Group.