Question

Because of increasing profits and inventory prices, the company changed from FIFO to LIFO inventory, which had a material effect on inventory and cost of sales. The change is adequately disclosed in the financial statements, and the auditor concurs with the change. The auditor will most likely issue alan):

A. Standard unmodified opinion
B. Unmodified opinion with explanatory paragraph
C. Unmodified opinion with changes to standard report wording
D. Qualified oplon
E. Disclaimer of opinion
F. Adverse opinion

Answer 1

An auditor will likely issue an unmodified opinion if they agree with a company's adequately disclosed change from FIFO to LIFO inventory accounting, as it means that the financial statements still fairly reflect the company's financial position.

Step-by-step explanation:

When a company makes a change in its accounting principles such as shifting from FIFO (First-In, First-Out) to LIFO (Last-In, First-Out) for inventory valuation and the effects are material, it is important for this change to be disclosed in the financial statements. If the auditor agrees with the change and concludes that it is reasonable and the disclosures are adequate, they will likely issue an unmodified opinion.

An unmodified opinion signifies that the financial statements present fairly, in all material respects, the financial position of the company. Since the change has been adequately disclosed and the auditor concurs with the change, there is no need for a qualified, disclaimer, or adverse opinion. If additional explanation is provided in the auditor's report about the change, it might include an explanatory paragraph, but the core opinion itself remains unmodified.