Question

When reporting on Comparative Financial Statements with Prior Year Financial Statements audited by a predecessor CPA firm, what is a key consideration for the current auditor?

a) Reissue the prior year's financial statements without modifications
b) Rely solely on the predecessor CPA firm's opinion
c) Assess the consistency of accounting policies between the current and prior year
d) Ignore the prior year financial statements and conduct a new audit

Answer 1

The current auditor should assess the consistency of accounting policies between current and prior years when reviewing Comparative Financial Statements with those audited by a predecessor CPA firm. They cannot simply rely on the predecessor's opinion or ignore the prior statements and must ensure comparability and adherence to auditing standards.

Step-by-step explanation:

When dealing with Comparative Financial Statements where prior year financial statements were audited by a predecessor CPA firm, the current auditor should assess the consistency of accounting policies between the current and prior year. The current auditor is not tasked with reissuing the prior year's financial statements without modifications.

Instead, they must consider whether the prior year's audit was conducted in accordance with generally accepted auditing standards and whether the accounting policies are consistently applied from year to year to ensure comparability. It is inappropriate to rely solely on the predecessor's opinion or to completely disregard the prior year's financial statements. If there are material inconsistencies, or if the prior auditor's report was not unqualified, additional disclosures may be required or the prior year's financial statements might need to be reaudited or reviewed.