Final answer:
In auditing, a change from an unacceptable accounting principle to a generally accepted one must be recognized as a consistency modification in the auditor's report, regardless of the disclosure in the financial statements. This is because it signifies a fundamental shift in accounting practice and affects the comparability of financial statements. Option B is correct answer.
Step-by-step explanation:
When an auditor is assessing financial statements, they must determine if any changes affect the consistency of the reporting. Certain types of changes are indeed recognized as consistency modifications in an auditor's report, even if they are fully disclosed within the financial statements. Let's review some types of changes and identify the one that should be recognized as a consistency modification.
Types of Changes
- Change in accounting estimate: This is often a result of new information or discoveries and does not qualify as a consistency modification, although it must be properly disclosed.
- Change from an unacceptable accounting principle to a generally accepted one: This is considered a correction of an error and does constitute a consistency modification.
- Correction of an error not involving a change in accounting principle: Similar to the item above, this also results in a consistency modification.
- Change in classification: This usually involves reorganizing financial statement items and does not typically constitute a consistency modification.
Based on these considerations, the circumstance that should be recognized as a consistency modification in the auditor's report, whether or not it is fully disclosed in the financial statements, is b. A change from an unacceptable accounting principle to a generally accepted one. This goes beyond simply changing an estimate or reclassifying items; it involves adopting a fundamentally different and more appropriate accounting framework, which has significant implications for the comparability of financial statements over time.