Adverse Opinion Due to Departure from GAAP

An adverse opinion indicates that the financial statements are not fairly presented

Affects auditor's report in 2 respects

1) Standard introductory & scope paragraphs
2) Explanatory paragraph added after scope paragraph to describe departure
3) Opinion paragraph refers to departure from GAAP & negates assurance provided by opinion
"In our opinion, because of the effects of the matters discussed in the preceding paragraph,
the financial statements referred to above do not present fairly ... "

Focus on
Reporting - Module 4
174

Inconsistencies
Most changes in accounting principles affect consistency
A change from one acceptable principle to another
A change from an unacceptable principle to an acceptable one
·1 A change in principle that is inseparable from a change in
estimate
A change in the method of accounting for subsidiaries
·2 A change in the companies included in consolidated financial statements
Certain changes do not affect consistency
A change in accounting estimate
·3 A correction of an error
A change in classification
·4 Ado~n of a principle for a new transaction
Changes that will affect future financial statements but not those of prior periods

Focus on
175
Reporting - Module 4