Audit and Assurance Practice Exam

Why must auditors add a paragraph to the audit report when there’s a change in accounting principle?

1. To satisfy regulatory requirements

2. Because it may affect comparability with previous financial statements

3. To express dissatisfaction with management

4. To provide additional audit time

The correct answer is: Because it may affect comparability with previous financial statements

When auditors include a paragraph in the audit report about a change in accounting principle, it is crucial primarily because such a change can significantly impact the comparability of the financial statements. Users of financial statements, such as investors, creditors, and other stakeholders, rely on the ability to compare financial information over different periods. A change in an accounting principle can alter how financial results are presented, potentially affecting decisions made based on this information. By adding a paragraph to highlight this change, auditors help ensure transparency and provide users with essential context regarding how the new accounting principle may have altered the reporting and what the implications are for financial analysis and interpretation. This practice aligns with the broader objective of promoting clear and consistent reporting, which underpins the credibility of financial statements. The other options address different aspects of the auditing process, but do not encompass the core purpose of ensuring comparability, which is fundamental to the users' understanding of financial statements.