accounting exercise

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BRIEF EXERCISE2-1

(a)     If the company changed its method for inventoryvaluation, the consis-tency, and therefore the comparability, of thefinancial statements have been affected by a change in the method of applyingthe accoun-ting principles employed. The change would require comment in theauditor’s report in an explanatory paragraph.

(b)     Ifthe company disposed of one of its two subsidiaries that had been included in its consolidated statements for prioryears, no comment as to consistency needs to be made in the CPA’s audit report.The compa-rability of the financial statements has been affected by abusiness transaction, but there has been no change in any accounting principleemployed or in the method of its application. (The transaction would probablyrequire informative disclosure in the financial statements.)

(c)     Ifthe company reduced the estimated remaining useful life of plant propertybecause of obsolescence, the comparability of the financial statements has been affected. The change is not amatter of consistency; it is a change in accounting estimate required byaltered conditions and involves no change in accounting principles employed orin their method of application. The change would probably be disclosed by anote in the financial statements; if commented upon in the CPA’s report, itwould be as a matter of disclosure rather than consistency.

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关键词：Accounting exercise counting Account Count included accounting principles statements therefore