Question

Wade Corporation has been your audit client for several years. At the beginning of the current year, the company changed its method of inventory valuation from average cost to last in, first out (LIFO). The change, which had been under consideration for some time, was in your opinion a logical and proper step for the company to take. What effect, if any, will this situation have on your audit report for the current year?

a) Adverse opinion
b) Unmodified opinion with an emphasis-of-matter paragraph
c) Qualified opinion
d) No impact on the opinion

Answer 1

The change in inventory valuation method from average cost to LIFO will require a modification to the audit report, including an emphasis-of-matter paragraph.

Step-by-step explanation:

The change in inventory valuation method from average cost to last in, first out (LIFO) will have an impact on the audit report for the current year. The change in accounting method is considered a material departure from generally accepted accounting principles (GAAP). As an auditor, you will need to assess the adequacy of the disclosure and its compliance with the appropriate accounting standards.

The change in inventory valuation method will likely require a modification to the audit report. This could include an emphasis-of-matter paragraph that highlights the change in accounting policy and its impact on the financial statements. The auditor should also consider the effect of the change on the comparability of financial statements between years.

Therefore, the correct answer is b) Unmodified opinion with an emphasis-of-matter paragraph.