Final answer:
An auditor must include an explanatory paragraph before the opinion paragraph in the audit report to address a significant change in accounting principle, which ensures transparency and the comparability of financial information.
Step-by-step explanation:
An auditor's report should refer to the lack of consistency due to a change in accounting principle when such change is significant. Such reference is typically made in the form of an explanatory paragraph included before the opinion paragraph in the auditor's report. This is done to ensure that the users of the financial statements are adequately informed about the change and the reasons behind it, as well as the impact on comparability of financial information. The explanatory paragraph would discuss the nature of the change, the reason why the new accounting principle is preferable, and the impact of the change on the financial statements. This helps to maintain transparency and ensures that the financial statements present a true and fair view of the company's financial position and performance.
Without such disclosure, stakeholders might not be able to make accurate comparisons between different periods, leading to possible misunderstandings or misinterpretations of financial results. As the change in accounting principle is a deviation from the principle of consistency, it is crucial for auditors to evaluate the significance of the change and to determine whether it necessitates an explanation in the report. If the change is deemed material, the explanatory paragraph becomes an essential part of the auditor's report, thereby upholding the values of evaluation, conventions, clarity, and coherence in financial reporting.