Question

While conducting an audit of a new nonissuer client, an auditor discovers that accounting policies applied in relation to the financial statement opening balances are inconsistent with accounting policies applied during the period under audit. In this scenario, what should the auditor do?
A.Obtain sufficient appropriate evidence about whether changes in the accounting policies have been appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.
B.Refrain from placing any reliance on information obtained from the review of the predecessor auditor's audit documentation of the prior period.
C.Request that management inform the predecessor auditor that the prior-period audited financial statements require revision.
D.Express a qualified or adverse opinion.

Answer 1

Answer:

A) Obtain sufficient appropriate evidence about whether changes in the accounting policies have been appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

Explanation:

When such things happen, the auditor must search more information regarding the accounting policies and must evaluate if the company's accountants adopted accounting policies that are legal and adjust to applicable financial reporting (e.g. GAAP in the US). The auditor must also try to determine the effects of the applied policies and if all proper disclosures have been included or not. The auditor should also try to determine why the company's accounting department did that and how do they justify it.